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