Can I Roll My Traditional 401(k) Account Balance Over To A Roth IRA?

Can I Roll My Traditional 401(k) Account Balance Over To A Roth IRA?

by Jeremiah Pizana 

Yes, you can make a direct or 60-day rollover from a 401(k) plan [or other qualified plan, 403(b) plan, or governmental 457(b) plan] to a Roth IRA, as long as you meet certain requirements*. First, you must be entitled to a distribution from your plan.

While you can always access your account when you terminate employment, in some cases you may be able to withdraw your own or your employer’s contributions while you’re still working (for example, at age 59½).

Note: Your plan may also permit the “in plan” conversion of all or part of your account balance to a Roth account, regardless of whether you’re eligible for a distribution from the plan. Check with your plan administrator.

Second, your distribution must be an “eligible rollover distribution.” Distributions that cannot be rolled over include hardship withdrawals, certain periodic payments, and required minimum distributions (RMDs).

Third, you must include the taxable portion of the distribution in your gross income in the year you make the rollover (“conversion”). But that’s the price you have to pay to potentially receive tax-free qualified distributions from your Roth IRA in the future.

Fourth, if your distribution includes both after-tax and pre-tax dollars, you can generally direct that only the after-tax dollars be rolled over to the Roth IRA (resulting in a tax-free conversion), while making a tax-deferred rollover of the pre-tax dollars to a traditional IRA.

When evaluating whether to initiate a rollover from an employer plan to an IRA, be sure to: (1) ask about possible surrender charges that your employer plan or IRA may impose, (2) compare investment fees and expenses charged by your IRA with those charged by your employer plan (if any), and (3) understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan.

Also consider all of your distribution options, including leaving the money in your employer’s plan, transferring the funds to a new employer’s plan, or taking a cash withdrawal.

*If you make a 60-day rollover, your plan will withhold 20% of the taxable portion of your distribution for federal income tax purposes.

Jeremiah Pizana is a financial planner who owns LibertyCrown Financial located in San Marcos, Texas and is an exclusive contributor to Corridor News. LibertyCrown Financial was founded with the distinct purpose of providing clients with the resources necessary to pursue a life of financial independence and prosperity. Jeremiah is an exclusive contributor to Corridor News and you can read additional columns from Jeremiah under our Business Section.

Copyright 2006-2017 Broadridge Investor Communication Solutions, Inc. All rights reserved.

This information is not intended to be a substitute for specific individualized tax or legal advice. As each individual’s tax situation is different, take time to consider all the facts and consult with your tax advisor before initiating a rollover. Distributions received before age 59 1/2 are subject to an early distribution penalty of 10% additional tax unless an exception applies.

Securities and advisory services offered through Royal Alliance Associates, Inc., member FINRA/SIPC and a registered investment advisor.   LibertyCrown Financial is a marketing name.  Certain insurance offered through Jeremiah Pizana is independent of Royal Alliance Associates, Inc.