Discussion:Can a 401K be converted to ROTH IRA
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Discussion Forum Index --> Tax Questions --> Can a 401K be converted to ROTH IRA
| 21 February 2006 | |
| Have a client that quit a job to take another. He had $20000. in a 401k that he wants to convert to a ROTH IRA. Can he do this--he knows he will be paying the taxes. | |
| 21 February 2006 | |
| I think he has to roll it to a traditional IRA and then convert the traditional IRA to a ROTH IRA. He must have less than $100,000 AGI to convert to a ROTH. | |
| 21 February 2006 | |
| ok,thanks. From what I am reading, I think that you must be right. I can't find any info that addresses this exact question that I can interpret.
My client called and said he was seeing his banker today and that his banker told him he should roll it over to a ROTH IRA. I'm not sure how to advise him. Any suggestions??? | |
| 21 February 2006 | |
| You would have to evaluate the decicision based on the amount of tax paid vs what that tax would have earned tax free. Usually it take a period of 10 years or so to break even. You alos need to consider the tax bracket now and in the future. My experience shows this is an obvious benefit for the young, and or the children as they can inherit tax free over their life.
It is not always smart for the elderly. | |
| 13 December 2006 | |
| I'm pretty sure the Pension Protection Act of 2006 now allows a direct rollover of 401(k) funds to a Roth IRA rather than dinking around with first transferring to an IRA and then a Roth. IMHO, I think Roths can make sense even for the elderly if they have exceptional wealth. If an elderly person can keep living until 2010 and has sufficient funds to pay the taxes (and has two years to do so if done in 2010), by converting all remaining IRA monies, the heirs will receive the entire account tax-free. | |
| 13 December 2006 | |
| I think this qualified plan direct to ROTH provision takes effect after 2007. You might want to check on that. | |
| 13 December 2006 | |
| Jusducki, you're correct. Sec. 408A(e) was amended for distributions after 12/31/2007. Right: beginning in 2008. Not much help now. --Larry Hess, CPA - Albuquerque, NM | |
Death&Taxes (talk|edits) said: | 14 December 2006 |
| "the heirs will receive the entire account tax-free" and if they die in 2010 also, there won't be any estate tax either, but if they live out the year, the estate tax is restored to 2001 levels(?) as the law stands now. I am not being facetitious, just commenting on the way Congress makes laws today. I would add the proviso that the elderly be in reasonably decent health, for the benefit of the transfer is the accumulation of tax free earnings if they can hang around a while. | |
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