Divorce 401k- rollover to Roth IRA or reg IRA?
I have a 65 year old woman who recently got divorced. As part of the settlement, she got $250,000 from his 401k. Can she roll this over to a Roth IRA or should she use a regular IRA for the rollover?
She will have income of $60,000 from alimony (taxable) and $10,000 from consulting and $8,800 from Social Security for 2008.
Thanks.
Permalink Submitted by Al Fry on Mon, 2008-05-19 20:06
Unless she can afford to pay the tax from other assets by going to a Roth, it probably makes more sense to go to a traditional IRA. She could then convert it over time to spread out taxes, if so desired.
Permalink Submitted by Alan Spross on Tue, 2008-05-20 00:35
If her ex is still employed, any rollover may not be automatic, ie the plan may not permit it, so that should be checked out first.
Second, if there are any after tax amounts which is frequently the case for highly compensation staff, the QDRO should specify the split on those after tax amounts. If she gets some after tax amounts, she may be able to do a Roth conversion directly from the plan tax free for those amounts if the plan is set up to allow it. She may be getting close to the 100,000 MAGI limit which still applies until 2010.
With 60k taxable alimony and other income, she may be in too high a bracket to make large Roth conversions advisable. Perhaps smaller incremental conversions would make more sense as Al suggested.