401k
401k Information

401k Rollover To Roth Ira

Can I Roll My 401(k) to a Roth IRA: The commonly asked question

In many ca 00004000 ses, an employer will offer a retirement savings plan such as a 401(k). If you ever leave that job, you will have to make a decision regarding your 401(k). You can cash it out and take what is in the account, minus taxes, but this is not advised. So this leaves the question, can I roll my 401(k) to a Roth IRA? The answer is yes, and for most individuals, it is probably the best thing to do. If you decide to do the rollover, you must have a Roth IRA account. If you do not currently have one, you will need to open a new account before performing the rollover.

Types of Rollovers: Direct Rollover / Indirect Rollover

When dealing with a 401(k) plan, there are two types of rollovers to choose from. The first is a direct rollover. This is usually the best option. With a direct rollover, the funds from your 401(k) will simply be sent over to the Roth IRA account. The only requirement is that you already have an open Roth IRA account. With this type of rollover, you should not incur any IRA penalties or withholding taxes when performing the rollover. It is a simple matter of transferring the funds from one account to the other.

The other type of rollover is indirect. This can be more complicated. You may have been trying to find the answer to whether you can roll your 401(k) over to a Roth IRA. Now that you have determined that is possible, you may have wasted some valuable time. An indirect rollover occurs when there were distributions made from the 401(k). Simply put, you would have received a check for the amount from your 401(k) account. If you do receive a check, you will notice that the amount will be less 20% for taxes. This is where things can get complicated. In order to abide by IRA rules, the rollover must consist of the entire amount that was in your 401(k). For example, if you had 0,000 in the account, you would have gotten a check for ,000. Now, when you go to perform the rollover, you must find a way to come up with that 20%! That means it is your responsibility to find ,000 to make up the difference. There is no need to panic too much because as long as you follow the rules, you will get the 20% back when you file your income taxes at the end of the year.

In addition to the 20% issue, you also have a time frame in which you must make the rollover complete. From the date the funds are distributed from the 401(k), you will have 60 days to complete the rollover. If you do not already have a Roth IRA account open, you will need to open a new account and make up that 20% that was lost to taxes. The rollover must be completed within 60 days.

Requirements for a Roll over from 401k to Roth IRA

Now that you have determined that you can roll your 401(k) to a Roth IRA, you must make sure that you will meet the eligibility guidelines for the Roth IRA. Of course, if you already have a Roth IRA, you do not need to worry about this. However, if you have to open a new Roth IRA, you must be aware of the Roth IRA rules. The most important factor is your income. Currently, in order to be eligible for a Roth IRA, your adjusted gross income cannot exceed 0,000 per year. If you exceed this amount, you will not be able to open a Roth IRA account.

If you do lose your job and have to rollover your 401(k), an IRA retirement account is your best option. A direct rollover is preferred, but it is not always possible. The process of rolling over your 401(k) to a Roth IRA is not complicated as long as you abide by IRA rules.

Frequently Asked Questions

  1. QUESTION:
    401k rollover to Roth IRA for married couple both age 60, Does it make financial sense?
    With the new rule in effect as of March 2008 allowing a direct 401k rollover to Roth IRA, could you shed some light on this scenario: A couple, both over 60 files jointly and will be earning less income when retired. Currently both are working and earn 100,000. When retired their income will be 46,000. They have 300,000 combined in their 401k and would like to know if it makes financial sense to rollover to a Roth Ira. Thank you for your help.

    • ANSWER:
      The short answer is – it depends on the tax rate. Let’s take 3 scenarios: Tax rates stay the same, your taxes are lower in retirement and finally your taxes are higher in retirement.

      Assumptions:
      1) You pay for the conversion out-of-pocket (as opposed to funding it with monies in the 401(k)).
      2) If you do not convert, you invest what you would have paid in conversion costs in a taxable account.

      Currently, your marginal tax rate is 28% and in retirement it will be 25%. Paying 28% now, when you can pay 25% later makes a ROTH less attractive. If the government decides to raise taxes, when you retire, a ROTH makes more sense.

      Now, there are other subtle differences between the types of accounts, like required minimum distribtions, that effect estate planning. This example does not consider this.

      You can make a case either way if the government will raise or lower taxes in the future. Since we do not know with certainty, I suggest another option. Rollover 1/2 of your account. Keep some in a pre-tax account (401k) and some in a post tax account (ROTH).

      This is a different kind of diversification – tax diversification. See the source that I listed from vanguard.

  2. QUESTION:
    Rollover IRA to 401K and Roth Conversion?
    IRA to 401k Rollover and Roth IRA Conversion in same year?

    My wife had her 401k rolled over to traditional IRA#1 in 2008
    when she had quit working. Now after resuming work, she wants to rollver back to new 401k,
    as the IRA#1 exists in same org which held old 401k and is charging annual fees!!

    Meanwhile, this year we opened new traditional IRA#2 in another place and made
    non-deductible contributions to 2010 and 2011. We initiated
    a Roth IRA conversion on Sat and its pending currently at Vanguard.
    Since all our contributions were non-deductible and I assumed we had
    no other balance anywhere in other IRAs, (totally forgetting about
    IRA#1) I thought there were no taxes to be paid.

    We then realized that because of IRA#1, and pro-rated tax some % of
    our conversions will be taxed un-necessarily. Since her total IRA will
    now also include tax deductible portion though not a big % of total IRA.

    We would ideally like to put back IRA#1 to new 401k and isolate the
    tax deductable IRA part and then go for conversion. But problem is
    we already initiated the conversion.

    We are thinking of some options:

    1) Try to stop the conversion? Is this possible?

    2) If not, Let the Roth conversion complete for IRA#2, and immediately initiate 401K rollover
    from IRA#1.

    Does this still mean we owe taxes on conversion? When is total IRA balance to be
    calculated? During time of conversion or end of year?

    3) OR Recharacterize and undo the Roth conversion, then initiate IRA#1 to 401k Rollover.
    I read that only one rollover per year is allowed per account. So is this possible?

    Does this help in avoiding tax at end of year? Can I again do another conversion from IRA#2 to
    Roth later?

    4) OR recharacterize and undo the Roth conversion, then transfer from IRA#1 to IRA#2 and
    again trigger Roth Conversion. I am ok on paying taxes in this case as long as I can
    get rid of IRA#1.

    If we recharacterize does this mean we already used on rollover allowed per year by IRS?

    Any other options? Please help.
    We have confirmed that the IRA#1 can be moved to new 401k via direct rollover.

    • ANSWER:
      It doesn’t matter what you’ve confirmed. As Woof stated, rolling anything into a 401(k) is almost always a bad idea. You lose options, control, and investment options. Consult a properly qualified financial planner or advisor who can help you wisely consider all available options. Most will do this at no cost.

  3. QUESTION:
    When converting from a Rollover IRA to a Roth IRA, is the money from the 401k rollover non deductable?
    I’m doing my taxes and I’m wondering if any of the money in the traditional IRA I converted to a Roth IRA in 2005 is treated as a non deductable conversion. ,400.00 was rolled over from a former employer 401k into a rollover IRA in 2002. Is this money treated as non deductable or do I have to pay tax for conversion purposes to the Roth IRA on this portion of the total amount I converted as well?

    • ANSWER:
      What you need to figure out is whether any of the original contributions to the 401k were after tax dollars. If they were, they would not be taxable on the Roth conversion. Your 401k statement will usually seperate pre and after tax contributions. If all of the contributions to the original 401k were pretax dollars than the total amount of the conversion is taxable in the year of the conversion.

  4. QUESTION:
    can you rollover 401k into an existing roth IRA?
    I have a 401k with my job and a Roth IRA. I’m planning to leave my job soon (for school) so can I rollover my 401 into the current Roth IRA since it would be less than the annual contribution limit (about 00). Or do I have to open a “Rollover IRA” and then maintain two separate IRA accounts?

    • ANSWER:
      No, you cannot directly roll a 401(k) into a Roth. Set up a (conventional) rollover IRA. In 2010, a tax “window” will open to convert it to the Roth if you so choose.

  5. QUESTION:
    Roth IRA – 401k Rollover Contribution Limits – will choose best answer?
    I have a total of three retirement accounts, and I need to make sense of how the maximum contribution limits apply to them.

    1) I have a Roth IRA, to which I make the maximum contribution each year. This year I have already deposited the maximum of 00.

    2) Totally separate from that account, I have a small 401k account with a former employer. I have left the employer, and they are forcing me to exit their plan. The balance on this account is only around 0.

    3) I just (today) opened a Bank of America Rollover IRA account. I opened this account for the purpose of receiving the funds from account #2, which I am being forced to exit.

    So the question is: if I rollover the 0 from my old 401K to the new Rollover IRA account, does this affect the contribution limits for my primary IRA account, the Roth? The Roth is my primary vehicle for retirement savings, and I don’t want to do anythat that reduces my ability to max it out. (And this year, it’s already maxed out).

    Thanks in advance. I will give 10 points for best answer.

    • ANSWER:
      As mentioned a rollover is not a contribution.

      It is usually best to do a direct trustee to trustee transfer to avoid any withholding or tax liability.

      But depending upon your ex-401k plan, they might give or send you a check (ours does if total is less than 00) in which case they would withhold 20% of the distribution (approx 0) towards taxes. But if you add that missing 20% back in from other sources when rolling it over within 60 days, there will no tax liability and you would get credit for the 20% withholding at tax time. If you do not add the missing withholding back in during rollover, that ~0 would be taxed and subject to 10% penalty (about another ).

  6. QUESTION:
    401K rollover to Traditional IRA or Roth IRA? Which is better?
    I have 10K in my 401K. I tend to roll it over to Roth, taxed once and never again, since only 4000 per year contribution is allowed, I can only rollover 10K this year 4000 and then next year 5000 and the rest, bit by bit? is that right? And I have to rolloever to a rollover IRA first right? Sincce I can only contribute 4000 or 5000 per year, the growth is not as large as if I have a larger lump sum compare to traditional. Unless I know by the time I retire, I am in a lower tax bracket… then traditional is good? I am confused, or maybe either turns out to be the same? I know traditional is tax deductable, Roth you can take the contributions out penalty free after 5 years. I read motley fool example and they said Roth is a bit better, but now I’m not sure. let’s just say, I can pay the tax now if I move it to Roth, but still, I can’t roll it all at once, correct?

    • ANSWER:
      you do not have to rollover to a traditional from a 401k… your can lump-sum it ALL out.

      Check with your brokerage, but I do believe the initial funding is not limited to 4k$ a year.

      Remember that you are paying 00 in penalties for early disbursal.. and whatever your income tax rate is on K. If you do it all at one time, you are paying a high hit on the penalty and potentially a high hit on the taxes.

      Were I you… I’d follow the path you are suggesting. Take it out in small bites and eat the penalties / pay the taxes that way.

      If you are young, and absent a matching 401k, the Roth IS your wisest move….If you have a MATCHING 401k you should fund it first and keep the money where it is… as the “match” is an INSTANT ROI that cost you NOTHING…

  7. QUESTION:
    401K rollover to Rollover IRA & ROTH IRA after tax dollars?
    I have a 401K from a previous employer which contains both Pre tax dollars and After tax dollars. I would like to rollover this 401K to my Rollover IRA (pre tax dollars) and my Roth IRA (after tax dollars). I believe the rules beginning 1/1/2008 allow this rollover to take place as a normal rollover, but I’m getting conflicting information from my source & target broker. Can anyone add any insight or clarify my understanding?
    THANKS
    Thanks Elizabeth… by normal rollover I guess I meant Direct Rollover.

    In your example I would end up with 4 accounts (2 pre tax & 2 “after tax”/Roth account)? couldn’t I then “rollover” 2 of the accounts (1 pre, 1 roth) into the other accounts (1 pre, 1 roth)?
    Sorry, I just spent time with my source and target financial institutions and I’m amazed but I’ve gotten various responses when trying to get this accomplished. I BELIEVE it can be done, but would like some “official” IRA document I can send to these 2 brokers.
    THANKS Again

    • ANSWER:
      what is that old saying ” you can’t get there from here” you can do what you want but it will take two movements to get it done == transfer the accounts into new accounts with the receiver and once he receives them than he can combine them!!!

  8. QUESTION:
    401k rollover to roth ira?
    if someone wants to roll overtheir 401k into a roth ira?
    if someone wants to rollover their 401k into a roth ira their pretaxed 401k money will have to be turned into after taxed money durring the rollover to the roth ira. Is this money going to be taxed at the normal income tax rate for the individual so if you are in a 15% tax bracket would it be taxed at 15%. Or is it going to be claimed as ordinary income at the end of the year and taxed accordingly, in which case would be 50,000 salary plus 120,000 rollover would equal a taxable income of 170,000 which would equal a 35% tax bracket.

    The money needs to be put in a roth ira because the preffered tax deffered retirement vehicle is a matching 401k so a traditional ira is not a option as the 401k will be kept to receive the employer contribution

    • ANSWER:
      Many 401k plans only allow early withdrawal if it is for financial hardship purposes. An employer can determine its own definition of “hardship”, but many use “safe harbor rules” which allow withdrawals for the following reasons: 1) To pay medical expenses, 2) To cover down payment or to avoid eviction or foreclosure on primary residence, 3) To pay college tuition, and 4) To cover funeral expenses for a family member.
      You can not roll it directly to a ROTH. It has to go through a traditional IRA first. Spread out the Traditional IRA to ROTH IRA transfer over several years, just transfer enough each year so you can stay in your lower tax bracket.
      If you tell your company to send a check to you (instead of rolling it over directly to a fund family’s traditional IRA account) and you are under 59 1/2 years old, your company will take out 20% for withholding tax and 10% as a penalty.

  9. QUESTION:
    I want to rollover 401k to roth ira – is deadline 12/31/09 or 4/15/10?
    Hi – I have old 401ks from old employers that I want to rollover to 401k b/c I was laid off this year and have very small AGI. When do I need to initiate the rollover and when do I need to deposit the money into a Roth account? Thanks!

    • ANSWER:

  10. QUESTION:
    what about a 2008 401k rollover to a roth ira?
    in 2008 rolled over 000 from a 401k to a roth ira, what taxes are due in 2008 and at what rate ? 1 post said there is a 10 % penalty also .i doubt this applies.can the tax due be taken from the rolled over assets without penalty ? not likely i would think

    • ANSWER:
      there is no 10% penalty. Taxes are due at your normal tax rate. You’re right, taxes can’t be taken from rolled over assets unless you want that part taxed and penalized. Taxes on 60k will be about 12k. You’re already paying taxes on it so that parts not a big deal. It’s the penalty that will cause the hit. You’ll be hit with a 10% penalty on that amount or another ,200. Though might be worth doing if you don’t have the cash available for the 12k tax bill

  11. QUESTION:
    401k Rollover to Roth IRA Tax Question?
    I have a tax-deferred 401k with a previous employer that I want to rollover to an IRA so that I have more options for investing. I do know that I can rollover to a Roth IRA, but my question is concerning a tax incentive of doing so. Currently I have (2) rental properties that I’m losing a lot of money on because of having bad tenants in both. One tenant I had to evict owing me about 00 and the unit has been empty for a few months now. The other unit, the tenant cause about 00 in damages and also has been empty for a few months. I already know that I will get all the taxes back from what was deducted from my pay this year, but still have enough losses to get more back at tax time if more taxes were paid.

    By rolling over my tax-deferred 401k to a Roth IRA, that money will be taxed as if it was income. My question is… since this will be taxable income, will I be able to offset my rental losses against this income? Is now the perfect time to rollover to a Roth IRA?
    To clarify, my age is 40 and the 401k amount in question is less than 20k and the income from my job is less than 50k/year. I plan on a direct transfer so no check will be made out to me. My income/loss for rental property is active because I maintain the properties. My intention was never to be a landlord, it just happen because of the real estate market being down and not the right time to sale after moving a couple of times in the last several years.

    I do appreciate the answers so far as they have been helpful.

    • ANSWER:
      The amount you convert to a Roth becomes gross income in the year of the conversion. If your gross income exceeds 0,000, you will not be able to take a loss on your rental property. Any loss that you are ineligible to take because your adjusted gross income is too high may be carried forward to another year.

      If you have allowable losses that more than wipe out your current taxes without the conversion, then you may run the numbers and figure out how much you can convert to absorb the excess losses, and effectively get a tax-free conversion. But, you have to keep in mind the ceiling for the passive loss decreases from ,000 to zero as your AGI goes from 0K to 0K.

      If you were thinking that the distribution from the 401k was passive income which could fully offset a passive loss, no it isn’t the case. Although a 401k distribution is unearned income, it is not passive income.

  12. QUESTION:
    401k rollover to Roth IRA Question?
    I am trying to roll my wifes 401k, from her previous employer into a Roth IRA. What is the effective date of that rollover? I initiated it today, but they say it takes 7-10 business days to complete. Will it still count as a rollover in 08 if the processing pushes it till the 2nd of January? So in short, is it the initiation date or the completion date that can be counted for tax purposes? (I didn’t want to wait till this late, her employer took their sweet a#$ time getting her termination of employment notice over to the 401k company)
    I have tons of deductions this year to cover the additional tax burden it would have. Thats why I am trying to force it this year. I would pay zero taxes on it.
    Just FYI, since I am getting really good answers here. My deductions for 2008 will be around 80,000 dollars.
    And to clarify I am trying to get it rolled into an IRA and then have Schwab convert that IRA into a Roth, in one continuous process.
    SmartA$$ comments on 10% penalties made me look it up. You don’t incur the penalty if you don’t make a withdrawal within 5 years of the conversion. Since I have about 30 1/2 years before I withdraw, I won’t have to worry about that right?

    • ANSWER:
      Generally, you can NOT rollover the pension (i.e. 401k) directly into a ROTH IRA.

      You would need to rollover the 401k to a IRA (i.e. rollover IRA account) then, IF you qualify based on AGI limits, roll the amounts from the IRA into the ROTH IRA.

      Generally, it depends on WHEN the COMPANY PROCESSES the rollover transaction so if you submit the forms on day 14, the company may process the paperwork and funds on day 20! It really depends on the company but they “usually” complete the process within 1-2 weeks time! Keep in touch with the company during this rollover period!!

      Now, since YOU state that you qualify under the AGI limit and have contact Schwab to do the rollover “properly” then the only thing to consider is the tax effect. Basically you WILL be taxed on the Roth Conversion amount (this is the proper name of the transaction – Roth Conversion).

      Issues:
      1. What are your deductions of ,000?
      – Seriously consider yourself an Audit target!

      2. The tax on Roth conversion is subject to Ordinary income tax (most likely 20-25% Fed). State tax rates depend on the state you live in.

      3. You should have other sources to pay the tax since the ENTIRE rollover amount MUST be converted to the ROTH!

      4. What penalty were you referring to?
      – You must keep the money in the ROTH IRA for minimum of 5 years then all distributions after that is Tax-Free.
      – You are allowed to withdraw the “Principal” amounts during those first 5 years but NOT the earnings. But what’s the point? Withdraw the principal and the (interest) earnings will drop!.
      – IF you touch the earnings within those first 5 years, then you would be subject to the early withdrawal penalties.

      You should seek the advice of local tax professionals in your area!!

      Law Change:

      Beginning 2008, taxpayers can now rollover distributions from a qualified retirement plan (i.e. 401k) into a ROTH IRA,whereas in prior years, they could not. The rollover is still not tax-free!

  13. QUESTION:
    Will a 401K rollover to a Roth IRA count towards the max contrubution for that year for the IRA?
    If I rollover my 401K to a Roth IRA, will the amount I rollover count towards the max contribution limit for that year?

    • ANSWER:
      Nope, it won’t count towards the max contribution limit for that year for the IRA. Just remember that by current laws you have to rollover your 401k into a Traditional IRA first and then to a Roth IRA. Good luck!

  14. QUESTION:
    Can I rollover a 401k into an existing roth IRA?
    Can I rollover a 401k into an existing roth IRA? Follow up question, after five years, can I withdraw all of the funds that I contributed to the 401k?

    Some context: I am contributing 16,500 to my 401k for the next few years, and I plan to roll it over to a roth IRA. Am I going to be able to access that money, or will it be frozen until I am 59 1/2?

    • ANSWER:
      Yes and yes. You’ll pay a penalty if you withdraw the money prior to it being in there five years. The five year “rule” means that you have to have the money in there for five years and be 59 1/2 prior to withdrawing it without facing a penalty.

      If both of those requirements aren’t met, you’ll pay the penaly.

  15. QUESTION:
    Is it better to rollover my 401k into an IRA, Roth IRA or my new employers 401k?
    I am about to leave my job for a new position. I am 24 years old and have about 5k in my 401k. Is it better for me to roll it over into an IRA, Roth IRA or into my new employers 401k program?

    • ANSWER:
      As an FA, I generally recommend an IRA rollover…more investment choices. Drawback…can’t take a loan from it but then again you really should avoid borrowing from your retirement savings.

      As for rolling to a Roth. It’s called a Roth conversion and is possible but you have to meet certain income requirements (<100K married or single) to be eligible. You will have to pay current taxes on it though.

      Good luck. feel free to email if you have any specific questions.

  16. QUESTION:
    Want Rollover my 401k to Roth IRA?
    Which is the best roth ira out there?

    • ANSWER:
      well i suggest you contact a broker and have he explain all the different types that he has — that wait you can find something that meets your needs!!!!

  17. QUESTION:
    401K rollover to either Roth IRA or Traditional IRA?
    Can someone explain these lines for me? I took them off from the small prints where my 401K’s at.

    “Federal income tax will not be withheld from a direct rollover to a Roth IRA . You are responsible for making sure that your estimated tax withholding is correct if you make a rollover from the Plan to a Roth IRA”
    “If you receive the DISTRIBUTION yourself and make a rollover to a Roth IRA, the amount of your distribution is subject to 20% mandatory income tax withholding on the taxable portion. The additional 10% penalty tax for certain distributions that are paid to you prior to age 59.5 does not apply to your distribution if you roll it over to a Roth IRA
    When they said that “your distribution is subject to 20% mandatory income tax withholding…” What do they mean distribution? Is it the distribution of money to you from the 401K, and then you do a contribute them in a Roth IRA?

    • ANSWER:
      the amount of tax WITHHELD doesn’t necessarily cover ALL The tax you will owe and you WILL OWE tax and penalty if you roll over to a Roth IRA – you could be throwing away 35% or more of your money by doing that between tax and penalty

      distribution is when you withdraw from an IRA or 401k and the money comes directly to you – DON’T DO IT THAT WAY if you are transferring the money to an IRA! – if you plan on transferring the money to an IRA – do a DIRECT ROLLOVER and let the IRA administrator handle the transfer for you, then you won’t incur any taxes or penalty or withholding (so long as you roll it to a REGULAR IRA-not a Roth)

      if you withdraw the money and then put it in an IRA yourself, taxes WILL be withheld and you will have to replace that money or it will become a taxable withdrawal and you’ll have to pay the 10% penalty

  18. QUESTION:
    At 31 yrs old is it best to roll previous comp. 401k into rollover IRA or Roth IRA i know w roth u pay tax now

    • ANSWER:
      Ahhh, the million dollar question for Roth accounts…

      And the answer is – it depends (sorry). Unfortunately, you need a crystal ball for this one. Your decision will likely come down to what you believe the future holds. You need to consider several factors, but you basically have two courses of action to take.

      1) Take the sure thing – Roll your 401(k) into a traditional IRA and then convert it to a Roth IRA, paying tax upon the principal and earnings at your current income tax bracket. The conversion option is currently subject to AGI limitations, so check with the IRS or a competent accountant first.

      2) Let it Ride – Simply roll your 401(k) into a traditional IRA and enjoy tax-free compounding of interest until you are able to take a qualified distribution (usually at retirement) at which time you will pay taxes on the principal and earnings at your future income tax rate.

      So, look into your crystal ball…

      Do you believe that you will be in a higher tax bracket at retirement age than you are right now? If so, the Roth conversion option may be the right choice for you as you will likely pay less in tax today than you would 35 years from now. Likewise, if you believe you will be in a lower tax bracket in retirement, it makes more sense to simply roll your account to a traditional IRA, enjoy your tax deferral over the years, and pay the piper upon retirement.

      There are several wild cards to consider in this scenario, not the least of which is the possibility that tax brackets change. If you want my honest opinion, I think it is naive to assume that the historically low tax brackets we enjoy today will be around in 30 years. I am also 31 years old and, without getting political, just look at the current landscape of our country and its budget deficits. The cost of wars, strains on social security from aging baby boomers, etc, leads me to believe that the government is mortgaging our nation’s current problems and our generation will likely have to pay for it. And how will we pay for it? Higher taxes. All things being equal, if I were you, I would opt for the Roth conversion.

  19. QUESTION:
    Can I rollover my 401k directly into a roth IRA?
    I just want to know if this is possible. Also, how would I go about doing this?

    • ANSWER:
      You actually have to roll it over into a traditional (or rollover) IRA first. After that, you can convert your traditional IRA into a Roth IRA, but the thing is you have to pay taxes on all of the money you want to convert. Best thing to do is talk to a financial advisor or planner on how to do this – or even IF you want to do this. Good luck.

  20. QUESTION:
    Rollover 401K into a Roth IRA?????????
    I have a 401K with a company I worked for 13 yrs and it “downsized” and closed its factory production where I was. I got a call from the financial company that handle the 401K and they want me to get my money out of that 401k since I dont work there anymore. I think that by law I do not have to move it but I heard that I could roll it to a Roth IRA and that I can take money out of that Roth to invest in the stock market etc etc?? Is this correct????? I have to call back these guys and find out what they suggest but dont want to get screwed just cause my former boss doesnt want to pay to have me in his companys 401k. Any correct info is appreciated…Thanks!

    • ANSWER:
      You can do what you say – you might be better off rolling it into a traditional IRA. Sounds like you will certainly get better service from a financial firm holding (broker, mutual fund company) than you will get from that 401k custodian.

      If you roll into the Roth (which is only just this year possible, you used to have to go 401k -> IRA -> Roth) you WILL pay income taxes plus maybe also a 10% penalty tax on all the $ that rolls over. Ouch.

      So 99% of the people roll into a normal IRA. You can buy stocks, mutual funds, CDs, etc. inside there. You do not need to tkae it out to do that. You will only be taxed when you take money out of the IRA.

      Good luck – and get some good advice. I know of a lot of peopel who took their 401k $, started investing DIY in the stock market – and now their 401k is a 201k.

      The technical term in the financial industry for this is “blowing yourself up.”

      All the people who promise you sure-fire systems to trade and make $ – they are all fakes.

  21. QUESTION:
    I want to rollover my 401k to a Roth, should I do it now?
    After doing a lot of research, I want to rollover my 401k to a Roth IRA account. But a couple of years I took some bad advice and borrowed from my 401k. I owe like 0. Should I pay that off before I rollover to IRA, or after?

    • ANSWER:
      If you’ve done a lot of research, you probably discovered that you have to pay off the loan first (or pay 10% plus regular income tax on the 0) and you must have terminated employment to be able to rollover the 401(k) account into any kind of IRA, Roth or otherwise.

      Assuming you are able to meet both conditions, request a “direct rollover” from your 401(k) to a Roth IRA. The direct rollover keeps the plan administrator from taking tax withholding.

      Most of William’s answer is correct, EXCEPT he is incorrect regarding the need to rollover first to a traditional IRA. You no longer need to do that – for at least the last two or three (maybe more) years, IRS has allowed you to rollover directly from a traditional 401(k) to a Roth IRA.

      By moving funds to a Roth IRA, you will have to pay taxes on the funds you convert. But 2010 is special – this year you have the choice of deferring those taxes until 2011 and 2012.

      Check out the link I’ve provided below for more details (from the IRS).

  22. QUESTION:
    401K Rollover to IRA (Traditional or Roth) with partial early withdrawl afterward?
    To whom it may concern:

    If anyone could help answer me these questions concerning early withdrawl from an IRA account for “First Home Payment”, I would greatly appreciated it.

    Here’s the situation:
    Let say I want to rollover K and withdraw K AFTER (as in 2 weeks after opening the IRA) the rollover into an IRA account (Roth or Traditional). Also let say, I am in 28% tax bracket. In addition, I considered myself as “First time Home buyer”

    1. Could someone lay out the implication scenerio from the IRS and from the investment house like Vanguard, Fidelity, or TRowePrice?

    2. Do the investment house like Trowe Price or Vanguard allow me to withdrawl the money I just invested in retirement (let say within a week after the Rollover)?

    Honestly, I’m a newbie in these area, your answer would be very helpful..

    • ANSWER:
      You can only roll over if you leave your job and the first time home purchase is 10K not 20.
      You can only roll to a traditional IRA not a ROTH, you could convert after if you are eligible.
      The tax would be at your marginal rate so 20K X 28% or 5,600 plus penalty on 10K is 1K so it cost you 6,600 leaving 13,400 for your home purchase. This will delay your retirement maybe several years almost any other way to get money would be better.

  23. QUESTION:
    Is there any advantage to rolling my 401k into a rollover IRA instead of my existing traditional IRA?
    I have an existing traditional IRA and two 401k’s from previous companies. I’d like to consolidate accounts.

    Is there reason I should roll the 401k’s into a rollover IRA instead of directly into my existing traditional IRA?

    Are there any consequences regarding maybe later converting the IRAs to Roth IRAs later?

    • ANSWER:
      The only thing you want to treat differently is any company stock from your 401k. Other than that it really does not matter where you put it and there is a lot to be said for having it all in one place.

  24. QUESTION:
    When I turn 60, Will I be taxed if I rollover my 401k to a Roth IRA, and immediately remove the funds?

    • ANSWER:

  25. QUESTION:
    is it possible to move rollover IRA to 401K?
    Rollover IRA is fully funded through previous 401K. Do we have to consider rollover IRA while converting other IRAs to Roth in 2010? If yes, is it possible to move rollover IRA to 401K to avoid it part of the conversion to Roth IRA in 2010?

    • ANSWER:

  26. QUESTION:
    When Rolling over money from a Roth 401k into a Roth ira, Do u have to report it on ur taxes?
    if someone has $$$ in a Roth 401k and they only worked a few months in 2006, they quit the compeny and rollover the $$$ into a Roth ira , when they do taxes for 2006, do they need to report it? and if so on what form?

    • ANSWER:
      Since no before tax money can go into a Roth IRA any portion of the rollover that would be taxable must be claimed as such for the year of the rollover. You should receive a 1099R that should show the taxable amount if any. You would also claim this taxable portion in the same way you would a converted amount on part 2 of the form 8606.

      Report the full amount of the distribution of the box 1 of the 1099R on line 16A and the taxable amount from box 2a of the 1099R on line 16B and write the word Rollover next to 16B.

      The rollover from the Roth 401K will not affect the Qualified Distribution date of the Roth IRA since it becomes basis in the plan
      See Publication 590

      http://www.irs.gov/publications/p590/index.html

  27. QUESTION:
    Rollover to Roth IRA?
    Hi everyone. Currently I have a Roth IRA, Traditional IRA, and 401k. I’m only contributing to the Traditional right now because my current employer does not offer a retirement plan (they will soon). My wife has the same set of accounts but is contributing to her Traditional and company’s 401k.

    I’m considering:
    - rolling over my 401k into my Roth IRA
    - get rid of my wife’s IRAs and rollover that money into my Roth IRA just to consolidate our accounts.

    In order to rollover my 401k I think I may have to first roll it into a traditional IRA and then in 2010 rollover my Traditional IRA into a Roth IRA. Is my understanding correct?

    It’s also my understanding that I’ll have to pay taxes on the rolled over 401k money since it is pre-tax money but I can do that over 2 year (2011 and 2012) I think. Is that correct as well?

    And I guess my more general question would be: is this a wise retirement move for my wife and I?

    Thank you!

    • ANSWER:
      Yes, do roll over your 401(k) into a Roth IRA. There are 17 different types of fees that your plan administrator can charge to your 401(k) account without disclosing these to you. They are taken net of earnings, and over a 20-year time period could easily reduce your accumulated value by 50% or more.

      You cannot consolidate your wife’s IRAs with yours. They must be kept as individual retirement accounts. There is no such thing as a joint individual retirement account.

      If your household income is greater than 0,000, then you are correct about having to convert to the traditional IRA first. The income limits for conversion to Roth IRA are considerably lower than the income limits for contributing to a Roth IRA. In 2010, there is an exception, and you will be able to convert your traditional IRA to a Roth IRA regardless of your income.

      Yes, you will have to pay regular income tax on the conversion. If the market is still down six months from now, and there is a better-than-even chance that it will be, you’ll have picked a great time, taxwise, to convert. And, because of the special conversion rule in 2010, you don’t have to report conversion income in 2010. You can report it in equal amounts in tax years 2011 and 2012.

      The Roth IRA is almost always a better choice than the traditional IRA if you qualify for a Roth IRA. Taxes are likely to be higher in the future, so it’s to your advantage to contribute with post-tax dollars now and avoid the higher taxes in future years. And, if you’re young, most of the accumulated value in your Roth IRA will be from earnings, and those are never taxed (assuming you follow all the rules). Also, you are not required to take distributions from your Roth IRA at any age – another big tax benefit for you and your heirs.

      By the way, the IRS Publication is 590, not 940.

  28. QUESTION:
    Why does Suze Orman say to put your 401k rollover from previous employer in traditional IRA?
    Suze Orman gives advice that people should rollover your previous employment 401k into traditional IRA. Then she says that in 2010 to move this traditional IRA money to a Roth IRA.

    Several Questions:
    1. What is a “traditional” IRA?
    2. What is the logic/benefit to move it to a Roth IRA in 2010?
    3. Won’t it get taxed once it is moved to Roth IRA? If not, why not?

    • ANSWER:
      1. A traditional IRA is a tax-deferred account. You can contribute up to ,000 per year and reduce your taxable income. In other words, you pay no taxes on the contribution, but it grows tax-free until you withdraw it (at which it is taxed as ordinary income)

      2. Some think that our tax rates must go up since they are currently at historic lows. So pay a low tax now and then no taxes later (Roth). So, Bush’s tax cuts go away in 2010 so our taxes will go up in 2011 when Congress doesn’t renew them. Plus, in 2010, even high income people not normally eligible for a Roth will be able to convert.

      3. It will be taxed when you move it over. But you will never have to pay taxes on that money again!

      Note: you should not do this if you are close to retirement and have a large percentage of employer stock in your 401k.

  29. QUESTION:
    Is it a good idea to rollover my after-tax 401K into my Roth IRA every year?
    I am currently contributing to an after-tax 401K through my employer. I also have a Roth IRA which I’ve been fully funding every year. My employer has the option of an in-service withdrawal in which I can rollover all or some of my money in my 401K into my Roth IRA. Unfortunately, I cannot choose to rollover my contributions alone. The withdrawal is treated as a combination of after-tax and pre-tax money (earnings) so regardless of how much I take out, I will still have to pay taxes. I would not have to pay that much in taxes because I will be rolling over on an annual basis and I am in a lower tax bracket. Would this be a good strategy or should I just keep my money in my 401K and wait until I retire to withdraw account?

    • ANSWER:
      It makes no difference. You are contributing to a Roth account through your 401K distributions already. The “after-tax” 401K plan is better known as a Roth 401K, as this account functions the exact same as a Roth IRA, except that its contributions are structured similar to a traditional 401K and can be employer sponsored.

      The only advantage of doing so would be to avail yourself of additional investment options that your personal Roth offers that your Roth 401K doesn’t. There is no tax advantage to doing this as you will be taxed on the account’s earnings as you withdraw them (only the initial contributions that you withdraw are withdrawn tax-free in both types of accounts).

  30. QUESTION:
    Rollover 401k to Traditional IRA or new company 401k?
    Hi, I’m 30 years old, single but will be married in a few months and the company I work for has new ownership so the 401k company is changing. I have the option to cash out my previous 401k, which I don’t want to do because of the tax implications. So, I have the option of doing a direct rollover to a Traditional IRA or my new 401k provider. I cannot rollover to a Roth IRA, etc.

    What should I do?

    I understand that FDIC insures higher amounts for IRA’s and covers up to 0,000 of bank deposited portions of 401k plans, so that is a huge upside to traditional IRA rollover. But, there is also a annual fee generally for the traditional IRA and a one time transfer fee.

    I’m planning on leaving this money in for the long haul but need advice on the best option.

    PS. I will start a new 401k regardless with the new provider since I get a 25% match up to 6 percent of my investment per month.

    THANKS!!!

    • ANSWER:
      You actually touch on a few different issues about rolling 401Ks to IRAs. First, although you can probably roll into the new 401K, I believe you are better off with an IRA rollover. That way, you have complete control over your investment, not the company’s plan.

      An IRA can be invested in many different things. If you have an IRA CD (which I don’t recommend for someone your age), it will be FDIC insured up to 0,000 currently. 401K plans are generally NOT bank deposited, so I’m not sure what you mean about the 0,000 figure.

      Your IRA rollover can be invested in mutual funds. If you know nothing about investing you can do one of 2 things: a) go to an investment advisor who will educate you and make recommendations; or b) do online investing with a low-expense mutual fund company like Vanguard, for example. They have an investment choice that is based on your current age, and they change the investments over the years to reflect how soon you will need the money for retirement.

      I suggest checking into both options and then making a decision. Good luck!

  31. QUESTION:
    Can I claim any current losses as I rollover a 401K to a Trad IRA in 2009, and into a Roth in 2010?
    So let’s say I have a cost basis of 0K in my 401K now worth K. In addition I have K in cost basis in a non-deductible traditional IRA now worth K. I’d like to rollover my 401K to an IRA now, giving me K of assets in an IRA. And in 2010, I’d like to move it all into a Roth IRA.

    I figure I’d need to pay income tax on 0K (pre-tax 401K earnings) in 2010, but would there be a reduction on this due to the 40K of losses? So pay income taxes on only K? In addition, could the K of losses in my non-deductible IRA further reduce this taxable amount to K?

    In general, how would this whole thing work?

    • ANSWER:
      Generally, you can not claim a capital gains loss on your retirement accounts that already are receiving favorable tax treatment. The only time you would have a loss is when you receive a distribution that had previously been taxed.

      http://www.irs.gov/newsroom/article/0,,id=201872,00.html

      http://www.irs.gov/pub/irs-pdf/p575.pdf

      Christine EA Master Tax Advisor

      This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided.

      http://www.hrblock.com/tax_professionals/christine_wilkins.html

  32. QUESTION:
    Can I rollover part of a past 401k account into a roth IRA?
    I would like to keep part of the money invested into my past employers 401k account since I have a vested pension and would like to keep ties with it.

    • ANSWER:
      Yes you can but be careful. Every cent you roll into a Roth IRA, you will have to pay taxes on. A wise course is to figure out how much you can stand to roll over each year without placing yourself into a higher tax bracket. Up to about 60k annually for a married couple is the 15% bracket. Try to stay under that. Then next year roll some more. And so on.

  33. QUESTION:
    Why can you rollover a traditional IRA to a Roth but, you can’t rollover a 401k to a Roth?

    • ANSWER:
      When your rollover a traditional IRA to a Roth, don’t you have to pay income taxes on the funds? If you want to rollover a 401K to a Roth you would have to pay income taxes on the whole amount. You’re better off to just leave that 401K in a tradional rollover IRA and deal with paying income taxes as you withdraw the funds.

  34. QUESTION:
    Can I rollover a 401K with current employer to a IRA or Roth IRA in another investment company?

    • ANSWER:
      Yes, but check your vesting schedule first.

      Your company may be making matching contributions to your 401k. Those contributions are sometime subject to longevity with the company. If those contributions are “vested” after three years, that means you own the money free and clear. If the money is not yet vested, and you pull the 401k, you risk losing the money they owe you.

      It’s generally wiser to leave your money with your employer’s 401k until you terminate employment. I’d have to see your contract to know for sure. But usually, there’s an incentive to leave the money there.

  35. QUESTION:
    Mutual fund IRA rollover vs. Roth IRA : which is the better move?
    Last year, I rolled all of my investments from the 401K plans of previous employers into a mutual fund IRA rollover account. I have recently been considering putting that money into a Roth IRA. I would not be contributing regularly to the Roth IRA, were I to do it.

    What are the advantages and/or disadvantages of doing this? Is my money as likely to grow as it would in a mutual fund investment? What are the tax issues involved with such a move?

    • ANSWER:
      You are not able to do this type of rollover because when you contribute to a 401k or a traditional IRA these funds are contributed on a pre tax basis where as a ROTH IRA funds are contributed by money that has already been taxed (like the money you take home from your paycheck)
      The tax differences are when you take money out of a 401k since that money was contributed pre tax (the contributions came out of your paycheck before the taxes are taken out) you have to pay taxes when you are ready to “cash out” your 401k but here’s the kicker. You pay about 20% federal taxes on the amount taken out (depending on your tax bracket or what the taxes will be at the time you take the money out) plus, if you take your money out before you are 55 and retired or 59 and still working then you taxed an additional 10% early withdrawl penalty…..so a lot of your money is gone to taxes.
      ROTH accounts are contributed by money that is already taxed so that when it is removed you may only be subject to the early withdrawl tax but no state or federal tax.
      But back to the original questions, since one is a pre tax contribution and the other is post tax you are unable to combine them in one account. Even if you suggest making up the taxes or whatever it just doesn’t happen, anywhere.
      You can contribute more money per year into a 401k plus you may also receive employer match.
      You can diversify and have both an IRA and ROTH IRA…speaking w/ a financial advisor is your best bet :-)

  36. QUESTION:
    Does rolling over a 401k into a Roth IRA affect CA unemployment insurance benefits?
    I was laid-off in June and have been collecting CA unemployment insurance benefits ever since. I want to rollover my Fidelity 401k from my old employer into a Vanguard Roth IRA, which will mean paying taxes on this “income” right now. What I’m not clear on is whether this “income” will be counted against my unemployment insurance benefits and cause me to lose any of them. Anyone know?

    • ANSWER:
      It doesn’t. Rolling funds from one retirement account to another is NOT income. It is taxable at the Federal level, but it has NO impact on income based benefits.

  37. QUESTION:
    if someone wants to roll overtheir 401k into a roth ira?
    if someone wants to rollover their 401k into a roth ira their pretaxed 401k money will have to be turned into after taxed money durring the rollover to the roth ira. Is this money going to be taxed at the normal income tax rate for the individual so if you are in a 15% tax bracket would it be taxed at 15%. Or is it going to be claimed as ordinary income at the end of the year and taxed accordingly, in which case would be 50,000 salary plus 120,000 rollover would equal a taxable income of 170,000 which would equal a 35% tax bracket.

    The money needs to be put in a roth ira because the preffered tax deffered retirement vehicle is a matching 401k so a traditional ira is not a option as the 401k will be kept to receive the employer contribution

    • ANSWER:
      You’ll get better access to people who can answer this question if you put in in the Taxes category.

  38. QUESTION:
    2010 Roth IRA rollover?
    I have rollover 20K (before tax) from 401K to IRA. In 2010, I would like to rollover that amount to Roth IRA. Do I have to pay tax for that amount?

    • ANSWER:
      The full amount of a Roth IRA rollover is taxable, regardless of your age. There is a special rule for 2010 rollovers, however, under which you can elect to delay paying the tax by declaring half the rollover as taxable income in 2011 and half in 2012 (instead of all in 2010). People planning to use this provision are holding their breath in fear that Congress will change the law before then, or will increase the tax rates for 2011 and 2012 so high that the election becomes useless.

  39. QUESTION:
    What do I do with my old 401K, invest in IRA or rollover into new 401K?
    I recently switched jobs and have 3500 in my old companies 401K but since it is under 5k they are making me close the acct. Shoudl I roll it over into my new companies 401K (which I wont be able to do until march) or do I invest in a Roth IRA?

    • ANSWER:
      Roll it over into a Rollover IRA. From there, you can transfer so much into a Roth IRA over the course of a few years.

  40. QUESTION:
    Rollover from 401k to another or Roth IRA?
    I live in NC and have ~25K in a 401k plan from an employer that I quit late last year for a new job. The 401k company was for a local government job & happens to be the same company that offers 401k, 403(b), and 457 deferred compensation plans (I am now a state employee). I am 36 years old, married with two kids and unsure what to do with the money I have thus far. Do I roll it over to the state’s 401k program or another one of the other voluntary supplemental retirement programs? Please help! My money is just sitting there!

    • ANSWER:

  41. QUESTION:
    Can I withdraw contributions from a Roth 401K after rolling it over to a Roth IRA?
    Just a hypothetical question – if someone has a Roth IRA account that has been open for a 5+ years, and also a Roth 401K account, and they decide to retire before 59 1/2, could they rollover that Roth 401K acct into the Roth IRA and access the contributed amount?

    For example, if I had contributed K to a Roth 401K which had grown to K, could I roll the account to a Roth IRA and withdraw the original K contribution tax and penalty-free before 59 1/2?

    Thanks!

    • ANSWER:
      yes you could do that!!!!

  42. QUESTION:
    If i rollover my 401k to a traditional IRA and then covert to a roth, on which value do i pay taxes? ?
    recently quit my job, over the past 4 yrs i contributed 30k, however the current value is only 24k. if i convert do i pay taxes on the 30k or the 24k?

    • ANSWER:
      I agree with doing it gradually if it would bump your tax bracket. I am gradually converting about k/yr to stay under the next tax bracket. I specifically tell my broker no withholding, because I have that covered with a W-4 adjustment.

      If you have withholding from the conversion, that 20% is considered an early distribution subject to 10% penalty if under age 59.5. If you pay the tax with outside money, you end up with more in the Roth IRA and no penalty (other than normal income tax).

      Tax is based on value at time of conversion. And if the same investments are available in both accounts, you don’t even need to cash out before conversion. Investments can be converted “in kind” (simply moved).

      Just try not to owe more than 00 at tax filing time to avoid the possibility of under withholding penalty (with a few exceptions).

  43. QUESTION:
    1. Where in 1040 does one report 401k to IRA rollover?
    2. Where on 1040 does one report Roth IRA to IRA rollover and vice- versa?

    • ANSWER:

  44. QUESTION:
    Is a conversion from a rollover IRA to Roth IRA considered a contribution? Which tax year do I pay taxes for?
    I opened up a Rollover IRA last week (Feb ’08) and rolled over my previous employer’s 401k to this new Rollover IRA. A few days later I opened up a Roth IRA and converted the money from the Rollover to the Roth. I have a few questions. Is this conversion considered a contribution? I know I have to pay taxes on the money I rolled over (because they came from a 401k), but do I have to pay it for my 2007 taxes or can I pay them for my 2008 taxes?

    • ANSWER:
      It is not a contribution. You will pay taxes on it for 2008. You will receive a 1099R for the rollover from the 401k to the IRA, and a 1099R for the conversion from the IRA to the Roth IRA, to be included in your 2008 tax return.

  45. QUESTION:
    Rollover IRA vs. Roth IRA?
    I have a rollover IRA, which was my 401K from my previous employee. It is not a small amount of money. My financial advisor suggested me to transfer it to Roth IRA and pay the tax now instead of pay the tax when withdraw at retirement. He said the tax bucket expected to be increased at retirement. What tax code should I pay to transfer from Rollover IRA to Roth IRA? Is it my regular tax bucket or 15% capital grain? Please give me some advice. Thanks a lot!

    • ANSWER:
      Transferring now from a Traditional (I think this is what you mean by rollover) IRA to a Roth IRA is a good idea, because the value of your account is probably as low as it has been in a while. However, as in the previous answer, all taxes will be due on that account at one time (I’m pretty sure it’s at your normal tax bracket). Sending it over piece by piece is a good idea if you can’t pay the tax bill right now.
      The idea behind a Roth vs. a Traditional IRA is this…hopefully you’re at a lower tax bracket now than you will be at retirement. When you’re retired and withdrawing from your IRA you should be living the good life…the better life you’re living means the more taxes you’re paying (in a Traditional IRA). If you have a long ways to go until retirement, switching makes sense. If you’re already near retirement age, the cost of the taxes may offset the benefits.

  46. QUESTION:
    Should I rollover into Traditional or Roth IRA?
    When I worked with the California school district, a retirement fund (401K) was set up for me. Now I have close to 00 that I want to rollover into an IRA. I always hear that Roth IRA’s are “better” but my boyfriend told me I should rollover this fund into a traditional IRA instead, and I honestly didn’t understand his answer. Can someone please tell me if he is right. What would be the better option here?

    • ANSWER:
      If you rollover your 401(k) plan into a Roth IRA you will have to pay taxes on all your contributions and capital gains. However, when you pull your money out of the Roth at Retirement time you will not have to pay any taxes on your withdrawals. If you rollover your 401(k) into a traditional IRA you will not have to pay any taxes up front, however after you make withdrawals in retirement you will have to pay taxes on everything you withdraw.

      The bottomline is taxes, pay them now with the Roth rollover or pay them later with a Traditional. Given the small amount that you have to rollover I would recommend that you take the Roth route it will not affect your tax liability that much anyhow, and hopefully when you retire it will be significantly more and tax free.

  47. QUESTION:
    What is the cut off date for rolling over my 401K into a Roth IRA so that it stays on 2006′s tax return?
    Say I made less than 90K in 2006, but I will make more than 150K in 2007 and I want to roll my 401K into a roth. Should I have done it before Dec/31/2006, Can I do it now before april 17th or is it possible to wait until after the april 17th deadline? Also will the rollover count towards my 2006 contribution limit for my roth IRA?

    • ANSWER:
      Congrats on your higher paying job! Unfortunately, you should have converted it before Dec. 31, 2006 to have it stay on your 2006 tax return. If you make more than 100k you can’t convert it until you make less than 100k or until after 2009. For 2010 and beyond the 100k limit is repealed. If you don’t want to leave it at your previous company you can still do a rollover of your 401k to a Traditional IRA and then convert it to the Roth IRA when it makes sense for you to do so. The rollover will not count towards any contribution limit for either the Traditional or Roth IRA.

  48. QUESTION:
    Rollover 401k to IRA, After tax dollars?
    I have a 401k that includes before tax and after tax dollars. I plan to roll it over into an IRA (s). Can I roll the before tax dollars into a Tradational IRA and the after tax dollars into my existing Roth IRA?

    • ANSWER:
      Yes to the former and no to the latter. After-Tax dollars are different than Roth designated contributions mostly because the tracking mechanism wasn’t in place for after-tax dollars.

  49. QUESTION:
    Can I have a Roth IRA and Traditional (Rollover) IRA?
    I currently have a Roth IRA. I wasnt to roll over my 401K at work into a Traditional IRA…can I do that?
    I saw on the Suze Orman show not to put my 401k from my last employer to my new 401K at my new employer…just put it into an IRA.
    Thanks!

    • ANSWER:
      You can do a rollover IRA (traditional) from a 401(k). The IRA is far more flexible than the 401(k) so the advice is spot on.
      Each year you can contribute to BOTH a Roth and a traditional IRA if you wish–just can’t go over the max amount alloted for IRAs in any year ever (K for 2007). So you could put K in a Roth IRA and K in a traditional if you wanted.
      As to rollovers, you can roll the whole 401(k) in–that’s a special deal so no K limit there.
      In 2010 you can turn traditional IRAs into Roths so you can look up details on that and can transition as you wish.

  50. QUESTION:
    Converting 401k to Roth IRA for young male professional?
    I am interested in learning more about converting 401k to Roth IRA. I have read a lot about it online, and I see how it works, I am only 23 now, but looking to the future. But I want to know what is the best way of taking advantage of this? For example, if I stop working when I am 55, since I will now be making no money, if I have cash saved up, can I rollover 50,000 from 401k to Roth IRA?

    That way, it should look like my AGI is 50,000 from 401k correct? Then I would have to pay taxes on this 50,000, but not from that 50,000 it looks like??? This is the part I am a little confused about.

    Also, let me know if there are any withdrawal type penalties for doing this before 59 1/2???

    Thanks!!

    • ANSWER: