Roth 401k to Roth IRA
My wife has contributed to both a regular 401k and a separate Roth 401k through her employer, which has now been acquired by another company. The old company’s 401k plans are being discontinued and employees can roll over from the old plan to the new employer’s 401k (or into an IRA if they wish). However, the new company does not offer a Roth 401k. My wife has been told she can roll over her old Roth 401k into a Roth IRA. Our MAGI is above the limit for contributing to a Roth IRA. Would this prevent us from doing the rollover from Roth 401k to Roth IRA? Also, would this be a good time to move the traditional 401k into an IRA? My wife is 55 and plans to continue working at least several more years. She plans to continue contributing to the new company’s 401k plan.
Permalink Submitted by Alan Spross on Fri, 2008-12-19 20:27
Fortuneately, the technical corrections portion of the recent bill that Bush has agreed to sign corrects the inadvertant error that made the 100,000 MAGI limit apply to Roth 401k to Roth IRA transfers.
Since this limitation will be officially lifted upon Bush’s signature, she can prepare to transfer the designated Roth account to a Roth IRA. The 5 year holding period for these contributions will default to her Roth IRA holding period, ie it will start anew if she does not already have a Roth IRA. If she does, it starts with the first year that she opened her Roth IRA.
However, the best time to incur a tax bill for an actual conversion of the pre tax 401k account is when your marginal rate for that year is less than or no worse than equal to what you expect your rate to be in retirement. Converting too much in a single year often results in the current marginal rate to increase too much. Therefore, you will need to do some tax projections in order to determine the answer. The income limit of 100,000 applies to these conversions until 2010, so she may not even be eligible until then.
Permalink Submitted by charles lore on Sat, 2008-12-20 22:43
It should be a fairly easy matter for your 401k sponsor ( employer) to modify the plan doc to now include Roth 401k .. No biggie!