Retirement can be exciting. Yet, as you begin to make plans for retirement, one of the decisions that you’ll have to make is what action to take with your 401k plan. Your 401k is the fund you and your employer have been setting aside for the past number of years. When you leave your employer (or turn retirement age), you can begin to deal with that fund without negative repercussions. To make educated decisions, you should definitely know the 401k rollover to Roth IRA rules.
Originally, rolling over to a Roth IRA was a complicated and indirect process. First, you had to open a traditional IRA. Only then could you convert the traditional IRA to a Roth IRA and finalize that rollover. The funds had to be under $100,000. Since January 2008, however, the rules have changed.
Now, it is sometimes an option to do the rollover 401k to Roth IRA directly. Not every 401k plan, however, makes it so simple. Some retirement plans make it possible with the mere check of a box on a single form. Others still do require you to first open a traditional IRA and then perform the transfer. It can be a reasonable hassle.
Beginning right now, however, in January 2010, it is supposed to be possible to convert every traditional IRA into a Roth IRA. The amount you convert will be taxed, but that bill can also be spread over three years.
If your employer sends you your distribution check from the 401k, most likely 20% will be held to cover taxes. You can ask your employer to send all the distribution directly to your new rollover IRA account. Do realize, however, that you have a limited amount of time to complete the rollover from 401k to Roth IRA. Sixty days, or no deal! Definitely do not procrastinate.
The most convenient way to do the rollover is if your employer offers a Roth 401k. In this case, there is absolutely no need for any conversions. The Roth 401k rolls directly into the Roth IRA. No hassle. No complications.
Basically, the main thing to make sure is that you have a Roth IRA open and established before you attempt to perform any rollovers. The process is a taxable event, so consult with your personal advisor in order to avoid any surprises. Restrictions may apply. Don’t take any action that will result in unnecessary penalties. And good luck!
Originally, rolling over to a Roth IRA was a complicated and indirect process. First, you had to open a traditional IRA. Only then could you convert the traditional IRA to a Roth IRA and finalize that rollover. The funds had to be under $100,000. Since January 2008, however, the rules have changed.
Now, it is sometimes an option to do the rollover 401k to Roth IRA directly. Not every 401k plan, however, makes it so simple. Some retirement plans make it possible with the mere check of a box on a single form. Others still do require you to first open a traditional IRA and then perform the transfer. It can be a reasonable hassle.
Beginning right now, however, in January 2010, it is supposed to be possible to convert every traditional IRA into a Roth IRA. The amount you convert will be taxed, but that bill can also be spread over three years.
If your employer sends you your distribution check from the 401k, most likely 20% will be held to cover taxes. You can ask your employer to send all the distribution directly to your new rollover IRA account. Do realize, however, that you have a limited amount of time to complete the rollover from 401k to Roth IRA. Sixty days, or no deal! Definitely do not procrastinate.
The most convenient way to do the rollover is if your employer offers a Roth 401k. In this case, there is absolutely no need for any conversions. The Roth 401k rolls directly into the Roth IRA. No hassle. No complications.
Basically, the main thing to make sure is that you have a Roth IRA open and established before you attempt to perform any rollovers. The process is a taxable event, so consult with your personal advisor in order to avoid any surprises. Restrictions may apply. Don’t take any action that will result in unnecessary penalties. And good luck!
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