Can 401k be used to fund ETF - no penalty?

[offroad]

Okay I think I am failing to understand something fundamental. Is it possible to move funds from a 401K to an ETF account to use to buy and sell ETF upon demand?

Or is that not allowed because of the penalty for withdrawing early is 10%, plus the tax rate for your income that year. Am trying to find a way to make my 401k money work harder (its not TSP money). Thought I could just move all 401k funds to an ETF and start using the signal here to move back and forth upon demand.

 

[dougscott]

I'm not the expert, but 401K is typically a corporate managed retirement account with only have select funds/stock choices. You can roll 401K funds into a self managed IRA and buy ETFs. Side note .. you can also roll the 401K funds into TSP. Hope this helps some.

 

[offroad]

Dougscott - exactly. I want to move my 401k into a self managed IRA so that I can buy ETF. But of course without tax penalty. But I can't find guidance on that. Suppose I can just ask my Vanguard investment company how to do that. Any other links to examples of doing this?

 

[dougscott]

Offroad: The company that manages the 401K will transfer the funds to that broker that sets up the qualified "roll-over" IRA for you. As long as you do not "touch" (withdraw, hold or use) the funds there will not be a tax penalty (it's just a transfer from one account directly to another, on your behalf). Talk to the broker that you plan to trade with. This type transfer is done all the time, for example, some roll all TSP funds into an IRA after retirement. I don't plan to do that, but some do.

 

[offroad]

Offroad: The company that manages the 401K will transfer the funds to that broker that sets up the qualified "roll-over" IRA for you. As long as you do not "touch" (withdraw, hold or use) the funds there will not be a tax penalty (it's just a transfer from one account directly to another, on your behalf). Talk to the broker that you plan to trade with. This type transfer is done all the time, for example, some roll all TSP funds into an IRA after retirement. I don't plan to do that, but some do.

Any chance you can suggest three major brokers with low to no cost that can handle individually directed IRA funds that can work with ETF? Would think this is a major bit of advice to have, so that a person could do ETF managed self trading. With all the advice given for trading direction, not many our going to know that when your TSP account allows it (at retirement) you can move to an ETF and start getting major-risky--high-gain from a percentage of the funds.

 

[dougscott]

Any chance you can suggest three major brokers with low to no cost that can handle individually directed IRA funds that can work with ETF? Would think this is a major bit of advice to have, so that a person could do ETF managed self trading. With all the advice given for trading direction, not many our going to know that when your TSP account allows it (at retirement) you can move to an ETF and start getting major-risky--high-gain from a percentage of the funds.

I have not done adequate research to suggest brokers quality or pricing, but I think there are some threads on this site that address this issue. Maybe there are others here that have done the research or have personal experience with various market brokers. You can also "google" for an analysis ... I'm sure you're not the first to ask this question.

 

[Boghie]

Offroad,

There are lots of discount brokerage houses that will take your money. I am not in your position - having 401(k) assets that can be transfered to a self-directed IRA - so I really have not thought much about it. I use my Schwab account for safe money. I don't do much trading in it.

However, by reading your messages I do have a concern. You have assets set for retirement that is obviously for the long term future but you want to speculate with them. I know there are entire asset categories that TSP does not have - but should. Say REITS, commodities, cash, emerging growth, and sector funds. If you treat your TSP and your new self-directed IRA as a whole you could set up a very well diversified asset base that could survive 2008 crashes and do well in 2013 booms. On the other hand if you 'invest' your retirement self-directed IRA in Russian oil companies, high flying medical companies, shorting bonds, etc. than you are not investing for retirement. Best guess in that case is that a 'poacher' like BirchTree, Frixxxx, JTH, Intrepid, CH and many others will be on the other side of your trade and do quite well. I use 'poacher' in a family way - yuk, yuk. Information is the key, knowledge is your friend, and assets are important. Personally, I would ensure a stable and good retirement and then play with the extra loot. That is where I am going... Than I too shall poach

 

[offroad]

Actually I did some chatting with AMERITRADE representative. They will let me set up a self directed IRA with the funds I have, and then I can buy relatively safe ETF indexed to the DOW or indexed to the BOND markets. No I am not interested in speculating in Russian silver or other weird possibilities.

 

[wwwtractor]

You can actually set up your own ETF with up to 30 stocks or other ETFs of your choosing in it at Motif Investing.
Although, for most people the TSP accounts are good mainly because of the low management fees charged such as 0.02% TSP versus 0.5% outside TSP. That adds up over the years. At 59.5 years of age, you can move your TSP to any place you like just be careful to complete all the TSP forms.