If I do not withdraw and instead transfer funds directly, will I lose money to tax? Is it possible to rollover from a 410k into a ROTH IRA? It would be nice to start with more than $0 in my new ROTH IRA.
Hi @tsouik!
Thank you for your question! You will not have any tax consequences if you move the funds from a traditional 401k to a traditional IRA. It’s important to work closely with your benefit administrator (the site you go to check your 401k balance) and ask them about the process of moving the money into a different retirement account. Each administrator has a slightly different process.
If you are trying to move money from a traditional 401k to a Roth IRA, then there is a tax consequence since you would be taking pre-tax money and moving into an after-tax account.
I hope this is helpful. Keep us posted if there are any other questions!
Very helpful thank you!
Hi Shane,
Would you recommended rolling over a traditional 401k to a Roth Ira? Im debating on paying the taxes now to get it into my Roth. According to Schwab this wont go toward my contribution limit. My new employer does have a traditional and roth 401k.
My CPA predicts id have to pay in about $4k this year if I convert both accounts. She did suggest transferring 1 this yr and 1 next yr. And id be getting ~$2k refund. My wife will be workinh again and should be getting ~$70k/yr salary. Thats another reason why i was debating on doing both this year. Any advice is appreciated!
#1 401k ~ $18k
#2 401k ~ $13k
Hi @Dustin.Christen!
Agreed with Schwab - a rollover does not count against your contribution limit. Your question very much comes down to a personal decision. The two reasons why now may be a better time than waiting are because 1) you ideally want to do Roth conversions when your income is lower than normal, and it sounds like that may be the case relative to when your wife starts working again. And 2) doing a Roth conversion when the market is down is more tax efficient than doing it when the market is up. Obviously, there is no telling if the market will be way up or way down in the next year, but the fact that it’s already down 20% makes a Roth conversion more tax favorable today than just a handful of months ago.
Again, there is no right or wrong answer here since a number of the variables are hard (impossible) to predict.
I hope this was helpful. Let us know if there is anything else!
Shane
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I appreciate it! I think ill just do it all this year and be done with it. Thanks!