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Repercussions of closing an IRA Account

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Old 09-19-2009, 04:35 PM
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Question Repercussions of closing an IRA Account

So I have a question for you guys, I got a statement from one of the 6 IRA/Retirement accounts that I have for my balance and account info (they send one out once every quarter). On this particular account I have not made any payments to it in over 4yrs, as our company switched plans and unfortunately it could not be rolled over into a new account or added into our new account where we would be adding more money to it as the company I work for matches the payment to the account up to 3% (so if I put in 3% of my yearly earnings they would match that same 3%). Well after looking at the account the other night, I had noticed that at the rate it is losing money (stocks going down and broker fees), with no other income going into it, it is basically going to wither out to nothing which would be a complete loss of money.

At the beginning of the year it was at $5,000 (which was half the amount that was in there the previous year) now it is at $2,563 and some change, 9 months and it dropped $2,500. Hell just this last month it dropped a little over $500, and a third of that was there monthly fee.

So, if I were to close the account out where it stands right now, A) how much do you think it would lose? and B) would there be any long term repercussions with doing this (credit/end of year taxes)? I have other accounts with a lot more money in them as they are growing and dont have any fees since its through our company and half of it is not out of pocket cash. Also just to be clear, I am NOT doing this so I can have a few extra bucks in my pocket, I want to do this so I can take the remaining balance and add it to one of the other accounts.
 
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Old 09-20-2009, 11:51 AM
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IRA's and 401k's are subject to a lot of government rules and regulations.
If its a Roth IRA, then the money is already taxed, and it has its own set of rules.
If its a Traditional IRA, then the money has not been taxed, and has even more rules,
which include -
unless you file hardship - you'll pay a 10% penalty on the withdrawal right off the top,
you'll pay ordinary income taxes on all that you withdraw. (no taxes on rollover)

I think you're slightly incorrect on not being able to transfer your IRA from one administrator to another. You probably cannot transfer a 401 or IRA from an ex-employer to another, but you can ALWAYS open your own private IRA with your local bank, or Schwab, or Fidelity, or whoever, and you can "rollover" ANY past IRA's or past 401's to your new one. You cannot rollover a current 401k that your employer is matching into your new one. If they are depositing and matching, then they are in control. And finally be aware that your tax-free contributions to a 401k are about 16,000 per year, while the limits on an IRA are about $2,000.

What you should do is either pick one of your IRA's, or open a new one, and ROLLOVER all past IRA's and past 401k's into it. There are no taxes or fees to pay in a ROLLOVER. Pick one with nearly unlimited investment options, including CD's, money markets, stocks, mutual funds, and low annual administration fees. Fidelity, Schwab, etc are all good. Do not use one with very limited investment options such as one or two company stocks. These can wipe you out if those one or two stocks tank.

Now, for the bad news. Stocks in general have taken a bad beating over the last 2-3 years and many investments are still down 30 and 40% from their highs. You can either be very involved in trying to pick individual stocks or just pick mutual funds that maintain reasonable performance compared to the rest of the market. Either way, its about as risky as rolling dice in the short term, and is usually favorable over a long term, like 10 or 20 years.

I don't know how old you are, but i'd suggest that whatever you do, don't withdraw and spend your retirement savings unless you're buying a house or investing in additional schooling that will pay off higher wages. Don't just withdraw it and **** it away.
 

Last edited by dhvaughan; 09-20-2009 at 11:57 AM.
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Old 09-20-2009, 02:46 PM
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I may be completely off here, so please correct me if I am wrong, but from what I have read, with a Simple IRA to roll it over to a roth IRA (which is what I would like to do) I would still have to pay for the taxes on it (about 28%) but the 10% government charge would not apply. Another thing that I have been reading into is the fact that since the amount is so small it would not be such a huge loss. Even if a total of 50% was taken out of this account, it would not matter as that would be the portion that my employer had matched (50% came from me 50% came from them). The thing that is getting me is that this one account is basically dead in the water as it is not gaining anything and anything that it does will be very minimal. So pulling it out and reinvesting it does not sound like to bad of an idea (at least from the way I am seeing it now). If it was worth more than it was like one of the other ones I have going then I would not even think of doing this and would just do the roll over.
 
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Old 09-20-2009, 09:33 PM
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if you roll a pre-tax IRA to a pre-tax IRA, there is no tax nor penalty.
if you roll a pre-tax 401k to a pre-tax IRA, there is no tax nor penalty.
if you roll a pre-tax item (IRA or 401) to a post-tax ROTH IRA, you have to pay the tax, but no penalty.

even though your investment is in the tank, you should not withdraw it, nor pay taxes on it. just roll all old plans to an IRA where you have full control over it, and start over on your investment choices. you need to get it out of there asap since they're eating it up with monthly fees.
 

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