How do you transfer money from a 401k to a Roth IRA?

I have money from my previous employer sitting in a 401k. Since I'm young (23) I want to put this money into a Roth IRA. People have told me that what I will have to do is roll the 401k over into a Traditional IRA, then after I've been taxed on it, contribute the yearly amount to the Roth from the Traditional.

Is this correct? Also, is this something most brokers can do for you, and do they charge heavy fees to do this? My current 401k is with Fidelity, but I don't want to open my IRA with them, I'm looking at Scottrade or Charles Schwab right now.

Asked by justinic 46 months ago Similar questions: transfer money 401k Roth IRA Business > Financial Planning.

Similar questions: transfer money 401k Roth IRA.

Trustee to trustee transfer At either Scottrade or Charles Schwab you can have them send your previous employer forms to do a trustee to trustee transfer. These forms will direct your 401k plan to send the money to the new custodian tax free. You can do this for either an IRA rollover (which is what you are eligible for, not a traditional IRA) or a Roth IRA.

If you elect to do a ROTH, then you will receive a 1099 for the amount that was rolled over. So the entire amount in the 401k will be taxable in 2008. So if you have $10,000 in your 401k plan, that means you will pay probably $1500 in taxes on it.So you can withdraw it from the ROTH or pay it from other funds and leave the $10,000 in there (which would be the best thing to do.

) People have different opinions on whether it is better to roll your money into an IRA or pay the tax now and roll it into a Roth. Since you are so young, the math probably favors the Roth. But depends on whether you have the discipline to keep it saved and what return you will actually earn on the money.

You must be pretty savvy or you would not even have a 401k at this point. So I suspect the Roth is a good strategy for you. The fees should be minimal - like less than $100 to make the transfer.

I haven't checked, but I am sure they have a fee schedule. Scottrade will likely be less expensive than Charles Schwab with no reduction in services or value. Also, you probably know this, but you can put up to $5000 additional in every year so long as your income is less than $100,000.

In 2010, they waive that rule. Hope this helps..

How to rollover a 401K Check with Fidelity to be sure, I have fidelity and the website we use is 401K. Com, but usually it's done the same way, you ask for a full withdrawal, and when you receive the check from them, you have 30 days to deposit it directly into an IRA or another 401K. DO NOT cash or deposit the check in your bank account during that 30 days, that check from Fidelity is what you must deposit into your new account.Be very careful, don't be tempted to spend the money or 'borrow' the money, because it will cost you a 10% penalty, in addition to the taxes.

Also, look into both a Tradition IRA and a Roth, depending your situation, one is probably much better for you, than the other. Sources: I deal with this in my tax preparation business .

You cannot transfer from 401K to a Roth IRA. These are two different "kinds of money". A 401K is pre tax dollar contribution while a Roth IRA is post tax dollar contribution.

You are smart to get the money out from your previous employer. It can be a mess and a headache to keep track of multiple different accounts with multiple different companies. If you are trying to use the 401K money to fund your Roth you will take a huge tax "hit" as you are under retirement age.

You will pay an approximately 10% penalty just for dipping in to the money too soon. Not a good idea. It will take a long time to "recover" that money in your new Roth account.

If you are determined to do this however, here are the mechanics: Close 401K and take tax hit. (yikes! ) The money is yours to do what you want with---blow it in Vegas, downpayment on a home or use it to start funding a Roth.

Keep in mind w/ a Roth IRA there are income limits for who is allowed to contribute and caps for how much you can contribute per year. Also a couple more things about Roths: you can contribute for a specific year until 4/15 of the following calendar year (i.e. You have until 4/15/08 to contribute for calendar year 2007).

Also, any principle (i.e. Not the earnings) can be withdrawn without penalty in a Roth IRA. I would recommend that you put your old 401K money in a Rollover IRA.

And then open a Roth IRA anew and start contributing to that. You will have more money in the end----by avoiding that big tax bite. Congratulations of being in a situation where you have the burden of making these kind of decisions.

Best of luck! .

1 guybee: Presuming that the mechanics of what you suggest are correct (and I assume they are =) ) then the way you suggest of getting $$$ from a 401K directly in to a Roth is a lot smoother than my suggestion. However, I would still support flipping the $$$ in to a Rollover and then starting a new Roth. Here is why: The $$$ you propose that would go to pay taxes, $1500, is money that justinic need not give up.

He states that he is just goint to put it toward retirement anyway so why not keep if for himself? It could go in to the Rollover, continuing to earn him $$$. At retirement age, that money, earning 8% interest will have become $10,000.

Which will be helpful in paying the taxes on all the other $$$ that this saavy guy will earn in future years. For fun, plug numbers in to my favorite financial calculator:personal.fidelity.com/toolbox/growth/gro... .

Guybee: Presuming that the mechanics of what you suggest are correct (and I assume they are =) ) then the way you suggest of getting $$$ from a 401K directly in to a Roth is a lot smoother than my suggestion. However, I would still support flipping the $$$ in to a Rollover and then starting a new Roth. Here is why: The $$$ you propose that would go to pay taxes, $1500, is money that justinic need not give up.

He states that he is just goint to put it toward retirement anyway so why not keep if for himself? It could go in to the Rollover, continuing to earn him $$$. At retirement age, that money, earning 8% interest will have become $10,000.

Which will be helpful in paying the taxes on all the other $$$ that this saavy guy will earn in future years. For fun, plug numbers in to my favorite financial calculator:personal.fidelity.com/toolbox/growth/gro....

2 That is why I said there are differing opinions. But at his age 25, if he is disciplined and leaves the money to grow at a reasonable rate - he will have more tax free income from the Roth than he will after tax income from the $1500 growing in a tax free IRA. Remember, both grow tax free.So the $1500 he does not pay - has to grow to enough extra capital to pay the tax on the $8500 (assumes $10,000) he will have avoided by making the switch.

At age 65, if both funds grow at 8% - there is a $34,000 difference in favor of the IRA. But now we have to take out distributions for retirement.(Forget about RMD at age 70.5). If he withdraws 5% - He would receive $11,731 taxable vs. $9,971 tax free.

The breakeven tax rate is 15%. So if his bracket is above 15%, the Roth would have been better. Again, no hard and fast rule.

I would prefer to see him do the Roth and pay the tax from non qualified money - leaving the full $10,000 to grow tas free. Then it would $11,731 tax free vs. $11,731 taxable. I think you see my point.

That is why I said there are differing opinions. But at his age 25, if he is disciplined and leaves the money to grow at a reasonable rate - he will have more tax free income from the Roth than he will after tax income from the $1500 growing in a tax free IRA. Remember, both grow tax free.So the $1500 he does not pay - has to grow to enough extra capital to pay the tax on the $8500 (assumes $10,000) he will have avoided by making the switch.

At age 65, if both funds grow at 8% - there is a $34,000 difference in favor of the IRA. But now we have to take out distributions for retirement.(Forget about RMD at age 70.5). If he withdraws 5% - He would receive $11,731 taxable vs. $9,971 tax free.

The breakeven tax rate is 15%. So if his bracket is above 15%, the Roth would have been better. Again, no hard and fast rule.

I would prefer to see him do the Roth and pay the tax from non qualified money - leaving the full $10,000 to grow tas free. Then it would $11,731 tax free vs. $11,731 taxable. I think you see my point.

I am a "ghly Compensated Employee" and I max out my 401k contribution for the year. Can I also put money into an IRA" "I have $20,000 in a company 401K. I am resigning shortl.

Can I trans into an IRA (Roth or Trad)? What's the tax implic's" "I took a withdrawal from my Roth IRA to pay off debt, I have a 401k to move so can I put it into the Roth IRA avoid tax" "Why can't a Roth IRA be rolled over into a designated Roth account in a 401k? " "What's the difference between an IRA and a Roth IRA?" "I just retired, and have a 401k.

Thinking about going to an IRA. Can I take any money out prior to the transfer." "Rollover 401k to Roth IRA - can I still contribute an additional $5,000 too? " "I am sixty, should I move money from my 401k to a roth or IRA so that I pay the taxes now while I am still working?

" "May one rollover money from IRA to 401k to avoid taking RMD (which may be delayed if one is employed)?" "Contribute to a SEP-IRA as an employer for my one-person LLC or put some money in a Roth IRA?

I am a "ghly Compensated Employee" and I max out my 401k contribution for the year. Can I also put money into an IRA.

I have $20,000 in a company 401K. I am resigning shortl. Can I trans into an IRA (Roth or Trad)?

What's the tax implic's.

I took a withdrawal from my Roth IRA to pay off debt, I have a 401k to move so can I put it into the Roth IRA avoid tax.

I just retired, and have a 401k. Thinking about going to an IRA. Can I take any money out prior to the transfer.

I cant really gove you an answer,but what I can give you is a way to a solution, that is you have to find the anglde that you relate to or peaks your interest. A good paper is one that people get drawn into because it reaches them ln some way.As for me WW11 to me, I think of the holocaust and the effect it had on the survivors, their families and those who stood by and did nothing until it was too late.