Advice!!!

[hautemama]

Hello, I am in need of help with my finances.  I plan to purchase a home in the next year or so and in addition to rebuilding/repairing my credit, I need advice on IRA's and 401Ks.  I have a friend who works for Prudential.  I have recently purchased life insurance, and want to know if this is a good company?  He was talking about converting it into a "whole" life insurance so I can have mutual funds attached to it.  Also, I have 401k's in two separate companies (Diversified and Fidelity) and I no longer work for those companies.  My friend advised me to roll these over into a Roth IRA.  I plan to purchase a home, and withdraw 10k from this account.  What do you guys recommend? Good or bad idea?  I understand that it allows up to 10k for first time homebuyers without penalties.  Please help!!!!  And which companies for IRA do you recommend? Is Prudential also good for this???

[AndySoCal]

Converting the 401K to a Roth IRA I think would have tak consequences I think.. Here is link to an article that may help

http://www.investopedia.com/articles/retirement/08/convert-401k-roth.asp#axzz28lJDI1jR

On the whole life and mutual funds  what part of you premium is invested and  what are the cots associated to those investments?  Also what is the difference between the term life ins and whole life premium/

[jamie123]

These are very complex issues that will have long term implications to your future. Insurance agents are paid by commision, they really don't make much money on premiums but make a lot more money if you open new accounts. I'm not suggesting that your agent is doing this but I would suggest that you get a second opinion before changing anything. Who should you go to for a second opinion? An accountant. Check your local chamber of commerce for any members that might be a CPA. Call them and schedule an appointment for them to review your investments and tell them what your plans are. This could save/make you thousands of dollars in the long term.

[TheConductor]

+1 Jamie. These are complex financial decisions about your future and you should seek the advice of an independent professional who has nothing to sell you but his/her own expertise.

I am not a tax expert, but as I understand it, these are your options:

- Withdraw a $10k down payment directly from your 401k as a hardship exemption - this will cost you taxes on the distribution PLUS a 10% penalty

- Roll over one or more of your 401ks to a traditional (non-Roth) IRA, then withdraw the $10k down payment from that - this will escape the 10% penalty but still cost you taxes

- Convert your 401k either directly or indirectly to a Roth IRA, then withdraw the $10k from that - Converting standard 401ks to Roth IRAs is frankly a big mystery to me still. The law changed recently seemingly making it both more feasible and more confusing.  Aaagh!  The advantage here is that you would not be taxed on the $10k when you withdraw it from the Roth, BUT Roth accounts are supposed to be funded with post-tax funds, so I suspect that they find a way to tax you in the conversion process somewhere. 

Also, one sneaky thing to bear in mind is that if that $10,000 withdrawal is enough to push you into a higher tax bracket, you'll end up paying that higher tax rate on not only the withdrawal but on ALL OF YOUR INCOME.

So, to sum up, the main points are these:

- What your friend is suggesting is probably not as lucrative as it sounds...the IRS always finds a way to get their share.

- Get independent advice to make sure you are choosing the best course to preserve your retirement future and current assets.

[hautemama]

How do I obtain independent advice from someone reputable?  My friend referred me to someone who worked for Ameriprise, and he was a financial advisor but he wanted to charge me 1000-1500 per year.  Please let me know where I can get this advice

[TheConductor]

As Jamie suggested, try a CPA.