Author Topic: Switch my Roth 401k to a Traditional IRA  (Read 1333 times)

jmras5

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Switch my Roth 401k to a Traditional IRA
« on: July 26, 2016, 08:13:40 AM »
Can I switch my Roth 401k into a Traditional 401k? As now I am learning it would be smarter to save into a tax advantaged account.....

robartsd

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Re: Switch my Roth 401k to a Traditional IRA
« Reply #1 on: July 26, 2016, 08:30:43 AM »
Both Roth and Traditional are tax advantaged accounts - the tax advantages are just at opposite ends. You do pay income tax on contributions to a Roth account, but you don't pay income tax on qualified distributions, so the growth is all tax free after age 59 1/2. Traditional account contributions are deducted from your current income for tax purposes, but the distributions are counted as income down the road. You can stop contributing to your Roth and start contributing to a Traditional. You also may re-characterize contributions already made this year. I think contributions made for 2015 can still re-characterized until the October deadline for filing an amended return (you'd need to file an amended 2015 tax return to claim additional refund money). Contributions already made that cannot be re-characterized should remain in your Roth account. Which account ultimately provides the best tax advantage is a function of your marginal tax rate in the year of contribution and tax rates paid on the funds at withdraw. If you're a high earner using a frugal lifestyle to retire early, your low expenses in retirement can help you stay in a low tax bracket, so Traditional is likely a better choice. Roth is a great choice for someone who is currently in a lower income, early career position but expects to earn (and spend) a high income later and continue working to standard retirement age to support a spendypants lifestyle.

seattlecyclone

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Re: Switch my Roth 401k to a Traditional IRA
« Reply #2 on: July 26, 2016, 08:36:06 AM »
I'm pretty sure robartsd is wrong about the possibility of recharacterizing your prior contributions. This Fairmark article calls that out as one of the key differences between Roth IRAs and Roth 401(k)s. The existing Roth money has to stay post-tax. However it should be possible to switch future contributions to traditional. There's likely a spot on your 401(k) website to make that change.

boarder42

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Re: Switch my Roth 401k to a Traditional IRA
« Reply #3 on: July 26, 2016, 08:57:22 AM »
just switch future contributions.  i was dumb once too. ... but you will have contributions that can be withdrawn in future years to help bridge the 5 year roth ladder gap when you retire early.  its not the worst thing in the world.