Parent is past retirement age but doesn't need 401K money just yet and they are still working with the employer that is providing 401K. Does it make sense to slowly take the money out and put it in an investment account? Plan is to withdraw only enough to keep them under the next tax bracket. Wouldn't make sense to put a portion into an IRA and only continue to defer paying taxes?

Although it isn't as big an issue as it used to be, there were often more investment options in a self-directed IRA than in many 401(k) plans. Different people see it different ways but personally I would roll the funds over into an IRA.

What do you mean by past retirement age?

If your parent is older than 70 1/2 and is still working and contributing to the retirement plan, RMDs can be delayed.

We would need more information on the situation before advising.

After your parent passes the age of 59 1/2, they can take the full balance of the 401k and roll it out to an IRA or another account if they so desire. You just have to be aware of the tax consequences if you put it in a Roth or go with a brokerage account.

THey are over 65. Are there contribution or rollover limits to a Roth IRA?

Contribution limits to the Roth is $6500 each. There isn't a conversion limit or rollover limit. It isn't real clear what you are wanting.

On saving tax dollars, look at their tax rate now vs when they retire, vs when they are both 71 vs when they are single (when one passes). That will enable you to develope a plan of when to use/convert the IRA or 401k.

Maybe the first step is for them to ask their HR person if the 401k allows for "in-service distributions". Most plans do. It means that they can rollover money will working for the company.

Most 401ks are decent enough to keep until they retire.

Harkrider 93 said:

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Maybe the first step is for them to ask their HR person if the 401k allows for "in-service distributions". Most plans do. It means that they can rollover money will working for the company.

Most 401ks are decent enough to keep until they retire.

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after 59 1/2 the company can not prohibit one from withdrawing money. At day 2 after I hit 59 1/2 I took every dime out of my 401k, while keeping my payroll contributions at max, and put the $$ into a self directed IRA. About every 6 month for so I took out what I had accumulated . BTW. HR initially raised hell and told me I couldn't do it. I just went thru Prudential and ignored the HR clowns. Federal law trumps some idiot HR " rule".

They are over 59.5, they don't have to request in-service distributions, they can roll the whole balance out.

sherminator said:

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THey are over 65. Are there contribution or rollover limits to a Roth IRA?

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Contribution limits, yes.

$6500 annually over the age of 50 (which would be the case for your parents).

$5500 annually under the age of 50.

There is no limit to the amount you can rollover to a Roth IRA, you just have to be cognizant of the tax consequences.

SACR said:

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They are over 59.5, they don't have to request in-service distributions, they can roll the whole balance out.

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False. The plan has to offer the in service feature. Otherwise the funds have to stay until a benefit trigger

nactownag said:

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SACR said:

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They are over 59.5, they don't have to request in-service distributions, they can roll the whole balance out.

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False. The plan has to offer the in service feature. Otherwise the funds have to stay until a benefit trigger

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not sure I understand. My 401k did not allow for any withdrawals while employed ( we even forced folks to QUIT in order to clean out their account for emergencies..insane policy but that was typical of that hellhole shop) At 59.5 I called their bluff and rolled my entire account ( less about $1k) into my Edward D Jones self directed IRA. They fussed and fumed but were informed by the Prudential admins that federal law allowed me to do that. I believe that attaining 59.5 IS a benefit trigger.

Most plans allow for in service distributions however there are some that don't allow it.

I'm fairly confident it isn't a legal requirement to offer it

The law allows it but it is up to each plan to decide if they want to allow it and at what age. More than likely, a stink caused by the employees makes the 401k provider change the rules in the 401k so you can roll it. It used to cost the company to do it which is why they usually left it alone unless a lot complained.

Find a really good tax person. Financial advisers can be useful but watch out for fees.

My mom retired, for 2 years then went back to work and the best thing was finding a good tax person who knew how to minimize the taxes between her incomes (social security, a pension, and the wages from new job) and 401k, Ira and Roth IRA. I also persuaded her to move a lot of things to Vanguard, and Vanguard also offers some financial planning at a very fair rates.