Advice with an unexpected annuity

morgansforever

I worked for 6 years at my previous employer before I was laid off last October. I just received a company letter stating that I have $7900 that is mine, two thumbs up! Take the lump sum, pay my trusting Gov't and buy gold, roll it over into my 401K, or buy one screamin CC DMPL Morgan?
Just curious what the financial minds here would do.
Scott

C0INB0Y

GOLD

mrpaseo

First and foremost, what sort of money is this? Is it a severance check or a 401k roll over?

PerryHall

Pay off any credit card balances and then pay down any other debt.

DrBuster

Blow 20% on something fun, if that's a morgan or gold or a little vaca so be it. I'd bank/debt the rest.

OPA

Sounds like a 401k or Employer funded retirement. If so, roll it over into an IRA. If cashed, you're subject to a 10% penalty for early withdrawal + the distribution taxed as ordinary income. If it's a severance pay, go on a vacation, enjoy yourself or pay off interest bearing debt.

derryb

be very clear on tax consequences. If they withhold taxes on payment to you, it may not be enough. If they don't withhold you will need to file a quarterly estimated tax payment or most likely face a penalty at end of year.

If you roll it into an existing or new IRA (non ROTH) without taking possession of the money you can most likely avoid taxes. You may have the option of converting it into a ROTH. Talk to a tax proffesional before doing anything, especally taking receipt of the money.

morgansforever

<<First and foremost, what sort of money is this? Is it a severance check or a 401k roll over?>>

It's a pension plan from what I've read. I can wait till I'm 65 and receive $150 a month (life annuity), take the lump sum or roll it into my current 401k. I'll be 65 in 25 years, what's $150 a month worth in 25 years? The small print states that a lump sum is subject to a 20% withholding tax, which is $1580. I'll end up netting $6320 which would currently buy four 1 oz. AGE's and a bit left over.

EDIT: I'm NOT going to have fun with it, it's either gold or roll it into my 401k or another investment, maybe open an IRA with 4 oz. of gold.
I don't have any debt besides a mortgage and 6k towards that isn't going to make much of a difference.

BAJJERFAN

<< <i>be very clear on tax consequences. If they withhold taxes on payment to you, it may not be enough. If they don't withhold you will need to file a quarterly estimated tax payment or most likely face a penalty at end of year.

If you roll it into an existing or new IRA (non ROTH) without taking possession of the money you can most likely avoid taxes. You may have the option of converting it into a ROTH. Talk to a tax proffesional before doing anything, especally taking receipt of the money. >>



Can you file that quarterly estimated tax in the last quarter or the quarter in which you receive the funds? You can always OVERPAY the estimated taxes due so that you meet the 90% obligation at year's end.

morgansforever

<<Can you file that quarterly estimated tax in the last quarter or the quarter in which you receive the funds? You can always OVERPAY the estimated taxes due so that you meet the 90% obligation at year's end.>>

I have no idea. Going to see a friend who is a tax code nut.

guitarwes

I'd cash it and buy 275 oz. of silver with the $6320 you'll net. When silver goes up each $1/oz in the next few years, your potential profit will be $275 each tick up. I don't think 4 oz. of gold will give you this kind of return. That's just me.

Or you could buy 100 oz. now, 100 oz at the end of summer, and 75 oz. at the end of the year and cost average.

morgansforever

<<I'd cash it and buy 275 oz. of silver with the $6320 you'll net. When silver goes up each $1/oz in the next few years, your potential profit will be $275 each tick up. I don't think 4 oz. of gold will give you this kind of return. That's just me.>>

Thought about that route too. Also considered a FS MS70 PL UHR, or other combinations, i.e 69 PL, 69 PL FS, 70 FS etc. That's kinda risky, well it's all risky. Or a 4 pc. Buffalo fractional set in the OGP.

cohodk

Tax deferred compounding is best. Otherwise gold over silver.

Baley

<< <i><<I'd cash it and buy 275 oz. of silver with the $6320 you'll net. When silver goes up each $1/oz in the next few years, your potential profit will be $275 each tick up. I don't think 4 oz. of gold will give you this kind of return. That's just me.>>

Thought about that route too. Also considered a FS MS70 PL UHR, or other combinations, i.e 69 PL, 69 PL FS, 70 FS etc. That's kinda risky, well it's all risky. Or a 4 pc. Buffalo fractional set in the OGP. >>



A little something pretty for the collection is always nice

jmski52

First things first. You have to decide whether or not you want the money out of the system. So, do ya want it in? Or out? Only you can decide if tax-deferred status is worth it these days. In addition, nobody really knows if or when the US will ever have a bona fide financial crisis and whether or not having the money close at hand will ever be an advantage. Let me re-state that. Nobody knows.

If I were making a bet, I'd be giving a full-blown SHTF financial crisis about 20% odds, and a "return to normalcy" about a 1% chance.

Just find out from your former employer if any taxes are going to be withheld from the payment. If the funds were contributed solely by the company, it's all taxable (at your marginal rate). If you contributed some of your wages to the plan, only the gain is taxable - not your contribution amount.

Normally, they will have the funds already figured for taxable and non-taxable status. If your company didn't deduct for taxes, you can allocate enough of the distribution to pay for the taxes at the end of the year. Since this is a one-time deal, I don't think that you have to file a quarterly estimated tax payment. Just be sure to set enough aside.

Once you have an after-tax figure, you still need to decide whether or not to jump ship and pay a 10% penalty for early withdrawal. You might net somewhere between 60% to 75% of your funds if you decide to get out. This isn't as dramatic as it seems, since you are going to pay tax at your marginal rate someday anyhow. And tax rates will be going up for the foreseeable future.

If you decide to rip the money out of the system, you've posed the hypothetical question of gold vs. one screamin CC DMPL Morgan.

Frankly, I'd set the money aside until they issue the Reverse Proof Gold Buffs. Then, I'd buy a couple and keep any remaining cash as dry powder.

derryb

<< <i>

<< <i>be very clear on tax consequences. If they withhold taxes on payment to you, it may not be enough. If they don't withhold you will need to file a quarterly estimated tax payment or most likely face a penalty at end of year.

If you roll it into an existing or new IRA (non ROTH) without taking possession of the money you can most likely avoid taxes. You may have the option of converting it into a ROTH. Talk to a tax proffesional before doing anything, especally taking receipt of the money. >>



Can you file that quarterly estimated tax in the last quarter or the quarter in which you receive the funds? You can always OVERPAY the estimated taxes due so that you meet the 90% obligation at year's end. >>



Taxes are due by quarterly deadline in the quarter of receiving taxable income. Reason most people don't have to pay quarterly estimated taxes is because their income (paychecks) have taxes deducted more often than quarterly. All taxpayers are subject to quarterly estimated tax payment if they receive a sizeable untaxed taxable windfall. Note that life insurance proceeds are not taxable.

I never bother with the complicated quarterly calculations, I just over estimate (roughly 30% of untaxed income for the quarter) and get the excess taxes paid back at the end of the year when I file.

derryb

Depending on your age, you might consider opening a roth IRA brokerage account, converting (not rolling over) the funds into it (taxes on amount will be due). Use the brokerage account to play metal ETFs or miners. Advantage in doing this: Conversion is only way one can fund a large amount to a ROTH. While amount converted is taxed upon conversion all gains in the ROTH are earned tax free. Upon retirement all money withdrawn from the account is tax free.

While "tax deferred compounding is best," tax free compounding is even better.

I believe there is some kind of five year limit on withdrawing converted funds - not sure if it is from date of conversion or date of ROTH account opening.

cohodk

Doesn't he still need to be at least 55 to begin withdrawals from a Roth?

OPA

<< <i>Doesn't he still need to be at least 55 to begin withdrawals from a Roth? >>



No

Direct contributions to a Roth IRA may be withdrawn tax free at any time. Rollover, converted (before age 59½) contributions held in a Roth IRA may be withdrawn tax and penalty free after the "seasoning" period (currently 5 years)

derryb

When ROTH IRA Withdrawals Are Tax Free And When They Are Not