Should I roll my 401K into a Roth IRA?

[LiseE]

Just received a severance package today at work. It's all good .. been here 20+ years .. the package was very generous .. in good shape financially .. time for a new adventure!  But my question is what to do with my 600K 401K.  I absolutely must roll it out because their are only 4 options to invest in and the performance has been horrendous.  But do I roll into a Roth 401K?  I guess I'm going to get hit with a sizeable tax hit since we're in the 22% tax bracket.

Do the income rules apply for a rollover to Roth IRA?  We have not been able to start a ROTH because of high salaries.

Thanks in advance for any advice.

Lisa

[RWD]

It's a pre-tax 401k, right? Roll it over into a traditional IRA, then there is no tax hit.

[bw_94]

Yeah, definitely roll it into a traditional IRA. You don't want to take that tax hit!

[BlueHouse]

Are you going to get another job or are you done?  If starting a new job, check to see the new company 401k options and see if rolling it into the 401k is beneficial.   Then, start saving even more with a back-door Roth IRA. 
I'm saying to hold off on rolling into a traditional IRA in case you want to start a Roth IRA due to the pro-rata rule.  If you want to start a back-door Roth IRA, then you'll want to roll your 401k into another employer's 401k, not an IRA. 

[ecchastang]

It's a pre-tax 401k, right? Roll it over into a traditional IRA, then there is no tax hit.

This!

[LiseE]

Do you think it's still worth creating a conversion ladder at 53 years of age?  It will take 5 years to build the ladder and I'll be 58 .. almost at the 59.5 year age where I can access funds without penalty anyway.

Is it still worth putting into Roth IRA for tax free growth?

- Lise

[terran]

Do you think it's still worth creating a conversion ladder at 53 years of age?  It will take 5 years to build the ladder and I'll be 58 .. almost at the 59.5 year age where I can access funds without penalty anyway.

Is it still worth putting into Roth IRA for tax free growth?

- Lise

Are you retiring at 53, or do you still have income from employment? Do you have enough between savings. brokerage, and previous Roth contributions to cover 5 years of spending? Do you have enough to last until 59.5?

If you don't have income from other employment then doing Roth conversions now makes sense regardless of whether you need to start a conversion ladder or not. That is, even if you have enough money available without penalty to make it to 59.5 when you can withdraw directly from your traditional IRA without penalty, it still likely makes sense to do Roth conversions once you're retired. Ideally you want you taxable income to be as even as possible throughout your life since that will minimize total tax paid by avoiding jumps into higher tax brackets later in life.

If you're getting health insurance from the ACA then you need to consider the effect of conversions on subsidies in addition to income tax rates.

[DadJokes]

Do you think it's still worth creating a conversion ladder at 53 years of age?  It will take 5 years to build the ladder and I'll be 58 .. almost at the 59.5 year age where I can access funds without penalty anyway.

Is it still worth putting into Roth IRA for tax free growth?

- Lise

That depends on how much longer you plan to work, and the size of the stash once you hit 70.

If you plan to work until 60, there's no pressing need to roll it over, unless you expect it to be a fairly large sum by time you are required to take RMDs.

Also, if you plan to take some time off before working again, it may be a good idea to convert some now while you are in a lower tax bracket.