Author Topic: Rollover a 401k to a roth  (Read 397 times)

FireLearner

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Rollover a 401k to a roth
« on: January 21, 2019, 05:12:01 PM »
I am currently rolling my old employer sponsored 401(k) to a Vanguard account after switching jobs. Should I keep this as a traditional IRA or should I switch it to a Roth? I am trying to figure out what the tax advantages of doing this would be.

It is only about 8K dollars, so if I roll this over into a Roth I will have to pay taxes on it correct, and if so how do they tax this? Is it just counted as income for 2019?

Thanks in advance. All of the different accounts still confuse me to a degree.

G-dog

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Re: Rollover a 401k to a roth
« Reply #1 on: January 21, 2019, 06:09:22 PM »
Taxes would hit when you pay your 2019 income taxes.

Tax advantage is tax free growth on the Roth - so when you take out the money post-retirement it is tax-free.

Your 2018 tax returns should give you an idea how much you might pay in taxes if you move it into a Roth.  There may be a better explanation, but (made up numbers):

If the tax liability for $52K-$62K is $10K, and you at 52K, that $8K rollover falls into that tax bucket and doesn’t cost you anymore in taxes.

Case

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Re: Rollover a 401k to a roth
« Reply #2 on: January 21, 2019, 07:16:22 PM »
I am currently rolling my old employer sponsored 401(k) to a Vanguard account after switching jobs. Should I keep this as a traditional IRA or should I switch it to a Roth? I am trying to figure out what the tax advantages of doing this would be.

It is only about 8K dollars, so if I roll this over into a Roth I will have to pay taxes on it correct, and if so how do they tax this? Is it just counted as income for 2019?

Thanks in advance. All of the different accounts still confuse me to a degree.

Taxes give me a headache everytime i think about them, so forgive me if i am wrong.

Without knowing your full background, why would you want to do this as opposed to rolling it into a traditional ira?  If it goes to your roth, then you have to pay taxes on it now, rather than years down the line with the traditional. You can use the roth conversion ladder to avoid further taxes when withdrawingn from the traditional.
« Last Edit: January 21, 2019, 07:18:53 PM by Case »

FireLearner

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Re: Rollover a 401k to a roth
« Reply #3 on: January 22, 2019, 08:24:25 AM »
I wasn't leaning one way or the other. I was more just curious on why I would want to do it. It was one of the questions they asked me while trying to set the account up and it made me think.

slackmax

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Re: Rollover a 401k to a roth
« Reply #4 on: January 25, 2019, 06:50:25 AM »
I wasn't leaning one way or the other. I was more just curious on why I would want to do it. It was one of the questions they asked me while trying to set the account up and it made me think.

It's called a "Roth conversion" and people do it to control *when* they will pay taxes on the money, which is counted as income. If your tax rate (bracket)  is lower now than it will be when you retire, the thinking is to take the tax hit now. Other variables involved, though, as usual.

If you are over 59.5 years old, you can just make a withdrawal from your 401K (if your 401K allows partial withdrawals) and pay the taxes on the withdrawal. If under 59.5, then Roth conversion is the way to go.

I'm not an expert.