401k Rollover To Roth IRA

You are considering a '401k rollover to Roth IRA' but you don't know how to do it?

Basically, the rollover amount is subject to the same rules for the general Roth conversion rules. Most importantly, keep in mind that any amount converted to a Roth IRA that would otherwise be taxable must be included in your gross income in the year of the conversion. That means you may have to pay taxes for the conversion. If you have the after-tax contributions in your 401k, you don't have to pay any taxes for that amount.

Rollover or Not?

When you leave your job, you have to decide how to manage your 401k plan. If you don't do anything, you can keep it in your current plan. However, it's not good idea because you may enjoy more investment options and lower administrative fees within your control if you move to another retirement plan.

Then you have two choices left. You can cash it out or convert to another plan. The decision depends on you. But if possible, you'd better not use that money for the retirement planning purpose. It is entirely at your disposal but you may not accomplish your retirement goal.

You can rollover your 401k plan to a traditional IRA or a Roth IRA directly. You already know the benefits of a Roth IRA. If you are still not sure whether to move, refer to the 'To Convert or Not' article.

Rollover methods

You can make a '401k rollover to Roth IRA' using one of the following methods.

• Rollover If you receive a distribution check from your 401k plan, you can contribute the check to your Roth IRA account within 60 days of receiving the distribution. However, this rollover will be subject 20% withholding tax.


• Direct rollover option If you choose to directly rollover your 401k to a Roth IRA, there may not be any withholding tax.

Once the rollover is complete, you need to report the rollover amount as a taxable income in the year of the conversion.