401k rollover implications IRA vs. Roth IRA

I am interested in rolling over an old 401k into a personal IRA. I just don’t know if the best choice is to roll over into a Roth or traditional. I’ve maxed out my IRA contributions for the year. I currently make about $107k and had a $15k bonus. I have about $20k in my old 401k. I’m not sure what the salary limit contributions are for Roth or if I’m still eligible to do it. If I don’t qualify anymore is is worth doing a back door Roth or just do regular IRA? Also how would I calculate what taxes I’d owe if I rolled into Roth. Thank you

Hi @Jenpfc!

Great questions! Here are some quick answers to get you started. There are a ton of good resources on Investopedia and most brokerage sites that will give you background as well on all the nuances with Roth vs Traditional IRAs.

  1. If you file as single, the max income you can have in 2022 and still contribute to a Roth IRA is ~$144K (phase outs apply as well over $129K).

  2. rollovers from a 401k don’t count against the annual contribution limit.

  3. whether or not you convert to a Roth when you rollover your existing traditional 401k has pros and cons and depends on your overall situation. If you do convert to a Roth, it would be a taxable event and you would owe income tax on the conversion amount at the applicable tax rate. Generally, conversions are best to do in years where you have lower income.

I hope this helps! Keep us posted on any questions!

Thank you, Shane! All very helpful. As I learn more, are you able to explain the pro rata rule in layman’s terms? I’m not quite sure I understand.