Let's talk about investing! Stock market, ETF, etc.

[Corcaigh]

8 minutes ago, TheGreatBuzz said:

Funny this thread got bumped.

 

Am I reading this right? Essentially, if I make an early withdrawal from a Roth 401k, I have to pay a 10% penalty and it counts as income for the year. That's it. 

 

In general. prior to age 59 1/2 you'll owe ordinary income tax on the gains & dividends AND a 10% penalty on the total withdrawn amount (not just the gains). This also applies if you've had the account for less than five years. However, there are some exemptions dependent on the purpose of the withdrawal so maybe a tax accountant is worth asking what qualifies.

 

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions

[TheGreatBuzz]

37 minutes ago, Corcaigh said:

 

In general. prior to age 59 1/2 you'll owe ordinary income tax on the gains & dividends AND a 10% penalty on the total withdrawn amount (not just the gains). This also applies if you've had the account for less than five years. However, there are some exemptions dependent on the purpose of the withdrawal so maybe a tax accountant is worth asking what qualifies.

 

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions

 

Thanks. I just looked and the only one that potentially would apply is disability. But it is Buzzette's account and it doesn't apply to spouses. That's why I just wanted to verify the normal penalties. 

 

Edit to add: Our general thought process is now that we know I'm rated 100% P&T, a withdrawal is really a cash advance on my death benefits. When I die, even if tragically soon, she'll get Decedent and Indemnity Compensation (comically, when I'm gone, she'll get the DIC). So that offsets any loses she'd get from that money in her 401K. 

 

I feel like that is a solid, reasonable gamble. Thoughts?

 

Extra add: that's in addition to all the other widow benefits. For example, as long as she doesn't remarry, she'll never pay property taxes again.

Edited May 14 by TheGreatBuzz

[Ball Security]

13 minutes ago, Corcaigh said:

 

In general. prior to age 59 1/2 you'll owe ordinary income tax on the gains & dividends AND a 10% penalty on the total withdrawn amount (not just the gains). This also applies if you've had the account for less than five years. However, there are some exemptions dependent on the purpose of the withdrawal so maybe a tax accountant is worth asking what qualifies.

 

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions

You don’t pay taxes on the withheld amount? I thought that if I withhold $20k this year, i don’t pay income taxes on that amount this year. But when I withdraw it in retirement, I pay income taxes on that $20k plus any gains/dividends. Is that not correct?

[TheGreatBuzz]

7 minutes ago, Ball Security said:

You don’t pay taxes on the withheld amount? I thought that if I withhold $20k this year, i don’t pay income taxes on that amount this year. But when I withdraw it in retirement, I pay income taxes on that $20k plus any gains/dividends. Is that not correct?

 

We have Roth.

[Ball Security]

2 minutes ago, TheGreatBuzz said:

 

We have Roth.

Oh, okay. Totally missed that. Yes, that makes sense.

[Corcaigh]

38 minutes ago, Ball Security said:

You don’t pay taxes on the withheld amount? I thought that if I withhold $20k this year, i don’t pay income taxes on that amount this year. But when I withdraw it in retirement, I pay income taxes on that $20k plus any gains/dividends. Is that not correct?

 

He said the account was a Roth so those contributions are made with after tax dollars.

[Corcaigh]

43 minutes ago, TheGreatBuzz said:

 

I feel like that is a solid, reasonable gamble. Thoughts?

 

 

I have nothing to offer. The Bogleheads forum is full of experts with tax and military backgrounds and likely could help. Just create an anonymous account and have at it.

[abdcskins]

Markets have been pretty darn good the last year. No complaints. Feel like we are due for a correction soon, hopefully not.

 

I always have a difficult time buying when the markets are good, cuz I feel like I can get a better price in the future.

[Ball Security]

5 minutes ago, Corcaigh said:

 

He said the account was a Roth so those contributions are made with after tax dollars.

Yep, he cleared that up. 
 

But that answer leads me to another question, what is the difference between a Roth IRA and Roth 401(k)? Is it basically the Roth 401(k) is set up by the employer and its contribution limits are different?

 

My understanding is that for my Roth IRA (7K yearly limit), I can pull the contributions at any time penalty free (I just can’t put them back in). If I pull out any gains, I have to pay taxes prior to age 59.5.

 

 

[tshile]

48 minutes ago, TheGreatBuzz said:

I feel like that is a solid, reasonable gamble. Thoughts?

Without knowing the specifics of your DIC

🤔

if what you laid out is correct then sure - if you want that money now. Obviously if she waited until there’s no penalty she’ll keep 10% and your DIC

 

🤔

 

really just a personal choice 🤷‍♂️ 

[Corcaigh]

5 minutes ago, Ball Security said:

But that answer leads me to another question, what is the difference between a Roth IRA and Roth 401(k)? Is it basically the Roth 401(k) is set up by the employer and its contribution limits are different?

 

My understanding is that for my Roth IRA (7K yearly limit), I can pull the contributions at any time penalty free (I just can’t put them back in). If I pull out any gains, I have to pay taxes prior to age 59.5.

 

 

 

Roth 401k is set up by the employer, allows higher contributions, and does not have earning restrictions like the Roth IRA. And typically fewer investment options than Roth IRA.

 

And yes, you can pull out contributions without penalty, so that could be an option for @TheGreatBuzz to access monies in the account.

[bearrock]

14 minutes ago, Ball Security said:

Yep, he cleared that up. 
 

But that answer leads me to another question, what is the difference between a Roth IRA and Roth 401(k)? Is it basically the Roth 401(k) is set up by the employer and its contribution limits are different?

 

My understanding is that for my Roth IRA (7K yearly limit), I can pull the contributions at any time penalty free (I just can’t put them back in). If I pull out any gains, I have to pay taxes prior to age 59.5.

 

 

 

Pre-2024 roth 401k balance has RMD requirements, but post-2024 doesn't.  401K has much superior creditor protection than IRA, but investment options and voluntary terms like loans are employer driven.  Self employed Roth 401k exists too, which can hit the sweet spot if done right.  Roth 401k also has much higher contribution allowance than Roth ira. 

 

@TheGreatBuzz, unqualified early withdrawals are prorated between contributions (untaxed at withdrawal) and investment gains (subject to the penalty and tax discussed), in case that helps your consideration 

Edited May 14 by bearrock

[Ball Security]

7 minutes ago, bearrock said:

 

Pre-2024 roth 401k balance has RMD requirements, but post-2024 doesn't.  401K has much superior creditor protection than IRA, but investment options and voluntary terms like loans are employer driven.  Self employed Roth 401k exists too, which can hit the sweet spot if done right.  Roth 401k also has much higher contribution allowance than Roth ira. 

 

@TheGreatBuzz, unqualified early withdrawals are prorated between contributions (untaxed at withdrawal) and investment gains (subject to the penalty and tax discussed), in case that helps your consideration 

So let’s say his Roth 401k balance is $100k. He’s contributed $60k and it has grown an additional $40k. His goal is to pull out $30k. Are you saying that he can’t pull all $30k from his contributed piece? That 30k withdrawal would be 18k contribution and 12k gain and he’d half to pay taxes on the 12k?

[TheGreatBuzz]

9 minutes ago, bearrock said:

 

@TheGreatBuzz, unqualified early withdrawals are prorated between contributions (untaxed at withdrawal) and investment gains (subject to the penalty and tax discussed), in case that helps your consideration

 

Essentially only pay 10% on the gains, not the dollar value pulled out? That would make a big difference I imagine. 

 

I look shorter term for my own selfish reasons. So I was viewing it as 'pay $10k to get handed $90k'. I'll take that.

1 minute ago, Ball Security said:

So let’s say his Roth 401k balance is $100k. He’s contributed $60k and it has grown an additional $40k. His goal is to pull out $30k. Are you saying that he can’t pull all $30k from his contributed piece? That 30k withdrawal would be 18k contribution and 12k gain and he’d half to pay taxes on the 12k?

 

Yea, this?

[bearrock]

1 minute ago, Ball Security said:

So let’s say his Roth 401k balance is $100k. He’s contributed $60k and it has grown an additional $40k. His goal is to pull out $30k. Are you saying that he can’t pull all $30k from his contributed piece? That 30k withdrawal would be 18k contribution and 12k gain and he’d half to pay taxes on the 12k?

 

Right.  Early unqualified withdrawals are deemed prorated between contribution and gain.

 

Just now, TheGreatBuzz said:

 

Essentially only pay 10% on the gains, not the dollar value pulled out? That would make a big difference I imagine. 

 

I look shorter term for my own selfish reasons. So I was viewing it as 'pay $10k to get handed $90k'. I'll take that.

 

There's income tax on the gains too, so gotta track that part as well.  This is getting into an area where it makes sense to discuss your options with your plan admin and/or financial advisor (on a per incident fee basis if you want to seriously pursue it), but depending on the terms of your roth 401k plan, you may be able to take a loan for up to 50K or half of the balance, whichever is less.  Then you have to pay it back with interest in 5 years, but the interest is being paid back to your roth account with no income tax consequences, so it ends up being somewhat of a shifting of money from one pocket to the other.  Depending on how much you wanted to access and the fees associated with the loan setup (some plans charge, some don't), it could make sense to use the loan as a bridge till you hit 59.5 to avoid tax consequences.

[Ball Security]

5 minutes ago, bearrock said:

 

Right.  Early unqualified withdrawals are deemed prorated between contribution and gain.

 

 

There's income tax on the gains too, so gotta track that part as well.  This is getting into an area where it makes sense to discuss your options with your plan admin and/or financial advisor (on a per incident fee basis if you want to seriously pursue it), but depending on the terms of your roth 401k plan, you may be able to take a loan for up to 50K or half of the balance, whichever is less.  Then you have to pay it back with interest in 5 years, but the interest is being paid back to your roth account with no income tax consequences, so it ends up being somewhat of a shifting of money from one pocket to the other.  Depending on how much you wanted to access and the fees associated with the loan setup (some plans charge, some don't), it could make sense to use the loan as a bridge till you hit 59.5 to avoid tax consequences.

Is that proration concept also applicable to a Roth IRA?

[bearrock]

9 minutes ago, Ball Security said:

Is that proration concept also applicable to a Roth IRA?

 

Afaik, it applies to every unqualified early withdrawal from every Roth accounts.  So it applies to Roth IRAs too.  

 

EDIT:  Hmm, it looks like for Roth IRA, contributions come out first, so different rules apply to Roth IRA

Edited May 14 by bearrock

[Ball Security]

10 minutes ago, bearrock said:

 

Afaik, it applies to every unqualified early withdrawal from every Roth accounts.  So it applies to Roth IRAs too.  

 

EDIT:  Hmm, it looks like for Roth IRA, contributions come out first, so different rules apply to Roth IRA

Your edit was my understanding.

 

But, just like sex, everything I learned, I learned from the streets. So not sure how great my education is.

[bearrock]

1 hour ago, Ball Security said:

Your edit was my understanding.

 

But, just like sex, everything I learned, I learned from the streets. So not sure how great my education is.

 

In this case, your street education thought you well it seems 😂

 

Edit: Better than my spelling certainly 🤦‍♂️

Edited May 14 by bearrock

[Ball Security]

Nasdaq and S&P 500 hit all time highs in morning trading.

[Corcaigh]

22 hours ago, Ball Security said:

everything I learned, I learned from the streets.

Sounds like a more honest intriguing pitch for a financial advisor … rather than the usual ad with the picture of the (financial advisors) yacht

 

19 minutes ago, Ball Security said:

Nasdaq and S&P 500 hit all time highs in morning trading.

I’m pretty disciplined about not watching the markets daily, and at the end of every month I take a snapshot of all our investments in a spreadsheet in order to have a record of allocation percentage and total asset values over time to help with trends and planning.

 

But when the market reaches a high I feel compelled to make an early update for this month. 🤣

 

 

Edited May 15 by Corcaigh

[Ball Security]

1 hour ago, Corcaigh said:

Sounds like a more honest intriguing pitch for a financial advisor … rather than the usual ad with the picture of the (financial advisors) yacht

 

I’m pretty disciplined about not watching the markets daily, and at the end of every month I take a snapshot of all our investments in a spreadsheet in order to have a record of allocation percentage and total asset values over time to help with trends and planning.

 

But when the market reaches a high I feel compelled to make an early update for this month. 🤣

 

 

I record at the end of each month, but I definitely check during the month frequently. But I know not to make changes to my overall approach.

[ixcuincle]

 

[Corcaigh]

Ted Lieu could do better. It’s not just ‘higher’ than four years ago. The S&P is 85% above its May 15 2020 close.

[mcsluggo]

i purposely don't look at all.... but when the market is surging i WANT to pull some out to be able to shove it back in after the correction.   but i know i am lazy and i will mess up timing, so i just let it ride

 

 

 

 

edit::: that looks a bit more .....sexual ..... than intended.   sorry mom

Edited May 16 by mcsluggo