October 12th, 2009 12:39 PM by Ron Mastrodonato
Dear Dr. Don,I'm currently unemployed and I have a 401(k) still with my previous employer. Can I convert the 401(k) plan to a Roth IRA by transferring the money from the 401(k) to a traditional IRA before converting it to Roth IRA? Or, can I convert it directly from a 401(k) to a Roth? -- Tuyen Taxing Dear Tuyen,You no longer have to take the intermediate step of rolling the money into a traditional IRA before moving the money into a Roth IRA. The law changed with the 2008 tax year. Here's part of what IRS Publication 590, Individual Retirement Arrangements, has to say about the change: Prior to 2008, you could only roll over (or convert) amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. Beginning in 2008, you can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing or stock bonus plan (including a 401(k) plan), Annuity plan, Tax-sheltered annuity plan (section 403(b) plan) or Governmental deferred compensation plan (section 457 plan). Other rules also apply, so it's important to carefully read the relevant portion of IRS Publication 590 or to consult with a professional financial or tax adviser who understands the rollover rules. You haven't given me any details about your financial situation, other than you're currently out of work. I recommend running your plan to roll over your 401(k) to a Roth IRA by your tax professional to see if he or she thinks it's the right thing for you to do. To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
Dear Dr. Don,I'm currently unemployed and I have a 401(k) still with my previous employer. Can I convert the 401(k) plan to a Roth IRA by transferring the money from the 401(k) to a traditional IRA before converting it to Roth IRA? Or, can I convert it directly from a 401(k) to a Roth? -- Tuyen Taxing
Dear Tuyen,You no longer have to take the intermediate step of rolling the money into a traditional IRA before moving the money into a Roth IRA. The law changed with the 2008 tax year.
Here's part of what IRS Publication 590, Individual Retirement Arrangements, has to say about the change:
Prior to 2008, you could only roll over (or convert) amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. Beginning in 2008, you can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):
Other rules also apply, so it's important to carefully read the relevant portion of IRS Publication 590 or to consult with a professional financial or tax adviser who understands the rollover rules.
You haven't given me any details about your financial situation, other than you're currently out of work. I recommend running your plan to roll over your 401(k) to a Roth IRA by your tax professional to see if he or she thinks it's the right thing for you to do.
To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.