IRA Rollover

Archive for January, 2007

Question: Can I Rollover my “Standard” 401k into the new “Roth” 401k, WITHOUT penalty?

I have a fairly nice 401k for a 30 something. I’m contributing the max IRS allowed. It’s grown nicely. Yadda yadda yadda.

But I’ll have to pay taxes on it when I retire. Considering our countries desire to tax first, as questions later, I’d prefer to avoid this.

Much like the “grace period” when the Roth IRA came out, will the new Roth 401k allow “free” rollover? Will I be able to avoid tax or the 10% penalties usually associated with these types of transfers?

Answer: Short answer, “no.”

Long answer, there was no free grace period with the Roth IRA — you still had to pay all of the taxes due but you could spread the amount evenly over four years if you did the rollover in the first year offered. No penalty then or now with a Traditional to Roth IRA with a direct rollover.

As I read the current 401(k) rollover rules there is no penalty for rollover and all taxes will be due in year 1. Your employer may have additional rules and limits — consult your HR department and tax attorney.

I disagree with the first poster — there is an ongoing debate in the investment community regarding the benefits of Roth 401(k) versus regular 401(k) with the edge for most being a combo of both…esp. for younger folks like you. The fact is we have absolutely no idea what tax rates and rules will be like in 30 years when you retire.

Prepare for all reasonable possibilities.

Atlanta IRA|401k Rollover Retirement Plan is IOU for the IRS!