My Korean-American Life

  “I still don’t know what to do!” My husband said to me after reading my previous blog Roth Conversion: Is it a Good Idea? I intended to write a sequel on this topic, but with Thanksgiving and December quickly approaching, time has been flying by like a rocket, and I’ve been hardly able to find a spare moment. As Roth conversion needs to be done by the end of December, there's not much time left for 2024. So let’s dive in. The only certainty in life is the uncertainty of not knowing what tomorrow holds. If death comes unexpectedly early, a traditional IRA or 401(k) could drop a tax bomb without a proper estate planning. Let’s assume a man with $1 million in 401(k) who passed away at 62 just before his retirement. How this inheritance would work can be different depending on its beneficiaries.  Spouse Beneficiary Options: Roll Over to Own Account: The spouse can roll the inherited 401(k) into their own 401(k) or IRA. This option allows the funds to continue growing tax-deferr...

  My husband and I immigrated to the USA in 1999 and purchased our 1st home in the fall of 2000. For the down payment, we withdrew 401(k) with a 10% penalty. No one told us about 401(k) loans or the first-time home purchase exception to the IRA early withdrawal penalty. This law, introduced as part of the Taxpayer Relief Act of 1997, allows individuals to withdraw up to $10,000 penalty-free from an IRA to fund the purchase, building, or rebuilding of a home, provided they meet the IRS definition of a “first-time homebuyer.” We could’ve at least saved $1000 in 2000 tax filing. Avoid a mistake like mine by being informed about the specifics of IRA penalties and exceptions. The Basics of IRA Early Withdrawal Penalty Withdrawing funds from your IRA before you turn 59½ generally incurs a 10% early withdrawal penalty on the amount withdrawn. This penalty is designed to encourage saving for retirement, but there are several exceptions that might apply, allowing you to access your funds wi...

  I typed “Conversion of Traditional IRA to Roth” in Bing Image Creator; it generated four versions of images, all of which show a middle-aged man with gray hair at a desk full of papers and punching a calculator with a serious face. The image seems to aptly reflect the questions that arise more often as people approach retirement, especially for high-income earners who may face higher tax rates after retirement. As I mentioned in  my previous writing,  to compare Traditional vs Roth IRA, Traditional IRA offers tax saving right away, while Roth IRA offers tax-free distribution in the future when you withdraw after retirement. As the famous Marshmallow Test conducted with preschool children by psychologist Walter Mischel has proved, human beings prefer instant gratification to delayed, better one. If you have to wait, you would ask, “Is it really worth waiting?” Let’s dive into an example and analyze various scenarios to help determine if a Roth conversion could be benefic...