Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below. At 60, this couple is getting serious about retirement. They're also discovering that they don't necessarily have the same idea of what retirement should look like.
The husband wants to move $310,000 from an old 401(k) into a self-directed IRA and use some of it to buy rental property. He likes the idea of owning something tangible and collecting rental income instead of watching a portfolio of index funds move up and down with the market. He Thought He Needed $88K To Invest In Real Estate.
Then He Found A Way To Start With $100. Deloitte's #1 Fastest-Growing Software Company Lets Users Earn Money Just by Scrolling — Investors Can Still Get In at $0.52/Share After decades of steadily building their retirement savings, she's nervous about putting a large chunk of it into properties that could take months to sell and come with repairs, vacancies and other expenses. Neither one is necessarily wrong.
But with retirement getting closer, they don't have much room for a decision that doesn't work out. Before they even get to the real estate question, there's the matter of moving the $310,000. If the money goes directly from the old 401(k) to the new IRA in a direct rollover, it generally isn't taxable at that point, and the mandatory 20% withholding that can apply when retirement-plan money is paid to the account holder doesn't apply.
They could also receive the money themselves and complete a rollover within 60 days. That's where things get more complicated. Retirement-plan distributions paid to the participant are generally subject to 20% federal withholding, meaning they would have to come up with the withheld amount from other funds if they wanted to roll the full $310,000 into the IRA.
At 60, he generally wouldn't face the additional 10% early-withdrawal penalty that applies before age 59½. But any amount that doesn't qualify for a rollover could still be taxable income. For that reason, getting the rollover paperwork and process right matters before they start thinking about what the IRA will actually buy.
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