401k rollover to roth ira?

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 1

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.

Answer 2

For tax purposes, it should count the day the money is actually transferred. Might I ask why you are rolling into a ROTH IRA? If you roll into a ROTH, you must pay taxes up front, plus a 10% penalty if you are not of retirement age yet. I HIGHLY suggest rolling the funds into a regular IRA because you will avoid the 10% penalty and defer the taxes until you take it out. ROTH IRA accounts can be a great investment since the earnings on your money are tax-free. But it doesn't make sense to pay a 10% penalty to get that tax benefit when you can get tax defered investment in a traditional IRA without a penalty. Edit: Even with 0 taxes, you'll still pay the 10% penalty.

Answer 3

You roll the money in a standard IRA and then roll the standard IRA into a Roth IRA. You get taxed as if it was regular income, but the laws might change in the future. You are going to be taxed on that money regardless.

There are bonuses for having the money in a Roth IRA, such as the money being tax free to the heirs. If you give the Roth to somebody under 35, they can wait till they are 35 before forced by laway to start taking the tax free money out. There is also no time limit when you have to take the money out for yourself. With a standard IRA you have to take out a formulated amount starting at 72 1/2.

Answer 4

First thing is you can NOT convert or rollover 401k (any employer retirement plan) to Roth IRA.

But you can convert it indirectly in two steps as follows:
1. If eligible, rollover 401k to Rollover IRA
2. Then convert Rollover IRA to Roth IRA if eligible.

Check this link for more info:
http://www.theusefulinfo.com/finance/2007/04/can-i-rollover-from-401k-to-roth-ira.html

When you take out money from Traditional (Rollover) IRA it will be taxed as regular income. So it is better to do it when you will be in lower tax bracket. You can do this multiple years to get more benefit.

- Infoman
Not a legal advice.

Answer 5

are you sure you can roll 401K into Roth IRA?

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