WWMMD IRA Certificate

Re: WWMMD IRA Certificate

• hoffse member

  

  November 2014

  Wow, great for you!

  
  

  This is a hard question.  I think the answer has to do with your risk tolerance.

  
  

  First, I would find out what the penalty is going to be.  If it's what you are guessing ($200-$300), then if it were me I would probably cash out early and invest it.  My big disclaimer here is that I'm not particularly risk adverse, and I would be willing to invest that $4300 (or $4000 after the penalty) pretty aggressively.  Most years I would be able to make that penalty up and then some within a year.  I posted on another thread that I have one fund that has been throwing off over 30% in this past year (after losing 13% partway through the year, so it's pretty volatile).  

  
  

  That said, it's a risk.  If you're not likely to put it into aggressive investments then it might be better to wait a year until you can pull it out. $300 is 7.5% of $4,000.  So if you're not likely to put it in an investment that is somewhat risky, you may not make that 7.5% up in a year. 

  
  

  And of course, you could pull it out, invest it aggressively, and then have the whole thing tank.  There are no guarantees.

  
  

  But if it were me I would be inclined to cash it out and see if I could make up that difference... assuming the penalty were small enough, of course.  I recognize that's probably the minority position on this question, but at your age that would be my inclination given my personal risk tolerance.

  

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• hoffse member

  

  November 2014

  Oh I just read that you would have to wait 2 years to cash it out penalty-free and not 1?

  
  

  If that's the case, then you could probably be more cautious with it and still make up that difference if the penalty is as low as you think it is.  If that's the case, I would be even more inclined to cash it out now and start making it really work for you.

  
  

  

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• abrewer5 member

  

  November 2014

  @hoffse That is my thinking to. According to the website the L2050 fund where I currently have my entire TSP invested earned 26.20% as of Dec 13. So I think I could easily recover my money lost if it is $200-300 penalty.

  I am not investment savvy so I would definitely roll these funds over to my TSP directly and let the L fund do the investing for me.

  Another question on top of this: Will rolling this into my TSP count towards my annual contribution limit? I've heard mixed responses on this one.

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• maple2 member

  

  November 2014

  Rolling the money into your TSP will not count towards your annual contribution limit because you aren't making new retirement contributions with the rollover. You are just changing the way you are investing previous contributions.

  
  

   https://www.tsp.gov/planparticipation/transfers/methods.shtml

  
  

  Another consideration that might tip the balance even more in favor of rolling the IRA over, is the increased simplicity and convenience for you. Once all your money is in the same place, it will be easier to manage. That may be worth a small loss even if you wouldn't recapture the full value of the penalty with increased rates of return.

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• hoffse member

  

  November 2014

  maple2 said:

  Rolling the money into your TSP will not count towards your annual contribution limit because you aren't making new retirement contributions with the rollover. You are just changing the way you are investing previous contributions.

  
  

   https://www.tsp.gov/planparticipation/transfers/methods.shtml

  
  

  Another consideration that might tip the balance even more in favor of rolling the IRA over, is the increased simplicity and convenience for you. Once all your money is in the same place, it will be easier to manage. That may be worth a small loss even if you wouldn't recapture the full value of the penalty with increased rates of return.

  This.  It shouldn't count.  Still, it's probably worth 20 minutes on the phone with your plan provider to make sure it's done correctly so their system recognizes it as a rollover and not as your annual contribution.

  
  

  That fund is throwing off a good chunk of change for you.  If the plan is to just roll it into that, I would be very inclined to do it.  Just check and make sure you know what the penalties would be before you decide for sure.  

  
  

  Paying penalties and taxes for rollovers can definitely be worthwhile if the amount of money is small enough.  Before going to law school, my H had a small 401(k) with about $8,000 in it from his first employer.  He rolled it over to a regular IRA and then a couple years ago converted it to a Roth.  We had to pay taxes on it when we converted to the Roth, but we decided to do it while the fund was still pretty small and we were young enough to really max out the benefits of the Roth accounts. No regrets on that decision whatsoever, and now we won't have to pay taxes on any of the gains going forward. 

  

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• smerka member

  

  November 2014

  I personally like to keep control over my money, so I would suggest rolling the IRA into your own account somewhere. If you can take the tax hit, I would move it to a Roth, but if not, just a rollover IRA. A TSP is probably more secure than a private sector 401K, but I still would feel better having more control over it. I'm sure you could find a similar fund.

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• smerka member

  

  November 2014

  I personally like to keep control over my money, so I would suggest rolling the IRA into your own account somewhere. If you can take the tax hit, I would move it to a Roth, but if not, just a rollover IRA. A TSP is probably more secure than a private sector 401K, but I still would feel better having more control over it. I'm sure you could find a similar fund.

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