How can I switch my 401k to a rooth IRS with out ... - Roth IRA News

A roth account might be good or bad for you. They?re not good for everyone.

A 401k or IRA is just a type of account, and has nothing to do with how much of a return you can get from your investment. If you are investing in mostly a diverse mix of stock funds, you should expect a long term average return of 7-9%. In some years you will get more (like 13%), and some years you will lose money). In either type, you?ll be investing in a mix of mutual funds. The benefit of a roth IRA has to do with taxes.

Here?s the benefit: With a 401k or traditional IRA, you pay no income taxes now on the money you put in. You pay income taxes when you withdraw the money in retirement. With a roth IRA, you pay the income taxes now, and pay no taxes on the money you withdraw in retirement.

If your income tax rate is lower now than it will be in retirement, you do not want a roth account. If your income tax rate will be higher in retirement than it is now, then a roth account would be good for you.

HERE?S HOW YOU SWITCH:
You ?rollover? your 401k balance to a traditional (pretax) IRA. That means you tell the company that has your 401k to transfer the money directly into an IRA. As long as you don?t receive a check payable to yourself, you?ll pay no taxes or penalties. You then ?convert? the traditional IRA to a roth IRA. This is something the company that handles the IRA does for you. Basically, they take taxes straight out of the IRA and send them to the IRS. This makes the money in the IRA after tax, or ?roth? money.

BUT?

To be able to transfer the money from the 401k to the IRA, you?ll have to have already stopped working for the company. AND your company might have the ?roth 401k? feature, which allows you to contribute to your 401k plan with after tax money and have exactly the same benefit as the roth IRA. ALSO if your company matches your contributions to your regular 401k, that will probably outweigh any benefit you could possibly get from the roth IRA.

You need to talk to the company that manages your 401k plan to find out what your options are. And call a company that does IRAs to find out more details on the roth IRA to find out if it would be a good fit for you. Try Fidelity or Vanguard.

Source: http://rothira.solve-up.com/roth-ira/how-can-i-switch-my-401k-to-a-rooth-irs-with-out-penalties/

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