Retirement Accounts: Rolling Your 401k into a Roth IRA
Few people recognize their retirement accounts as investments, but they are. And in some cases it makes sense to switch up your investments in order to get the best possible outcome for yourself. In such cases, rolling your 401k over into a Roth IRA can be a good move. But you have to be aware that there are some rules for directly rolling 401k retirement accounts into a Roth IRA. Additionally, you can turn your 401k into a traditional IRA and then convert into Roth form.
If you are unsure of how it works, make sure that you speak to a knowledgeable professional who can help you with the ins and outs of taxes, and who can make sure that everything is in order. In the meantime, here are a couple of rules for directly rolling your 401k (or your 403b or your 457) into a Roth IRA:
- Adjusted gross income must not be more than $100,000, no matter your filing status.
- Until 2010, you cannot be married filing separately.
- Taxable income in your retirement accounts must be reported as income for the year of your conversion.
- While a direct conversion will not have a 20% withholding, 60-day conversions do. Make sure that you do a trustee-to-trustee transfer in order to avoid the withholding.
- Note that if you withdraw the funds from your account within five years of your rollover, a 10% penalty will be assessed.
Also, on all retirement accounts, check for required minimum distributions and other policies that may affect you now, and down the road. And make sure that rolling the 401k into the Roth IRA will really work for you.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.
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401k conversion, investments, retirement
