Designated 401(k) Roth Rollover to Roth IRA
I have been told that I am not able to roll my designated Roth 401(k) money to a Roth IRA because my MAGI is over $100,000. My plan is terminating. What options do I have? I’m under 59 1/2 so I’ll get hit with a 10% penalty! What can I do with this money to keep it growing tax-free? Help!!! I have to make a decision in 15 days!!
Permalink Submitted by Alan Spross on Sat, 2008-04-12 00:23
Yes, it is true that there is an unintended error in the tax law that applies the standard Roth conversion MAGI limits to a Roth 401k rollover. However, this is almost certain to be corrected in the next technical corrections bill, so there is very little risk in insisting that you want the transfer done to the Roth IRA.
What is the plan telling you about your options? And how much of your current balance is earnings on your contributions? Any employer match you may have received did not go into the Roth account, but into the pre tax account. And any penalty you paid on a distribution would only apply to the taxable amount, which is the earnings, not the contributions. Still, even if you have no earnings you would be better off to maintain the contributions in a Roth rather than a taxable account.