Traditional 401(k) and 403(b) conversion to roth
Does the conversion option for traditional IRA money to roth money also apply to traditional 401(k) and 403(b) accounts? If so are there any additional rules or considerations?
Thanks,
scott
Does the conversion option for traditional IRA money to roth money also apply to traditional 401(k) and 403(b) accounts? If so are there any additional rules or considerations?
Thanks,
scott
Permalink Submitted by Alan Spross on Thu, 2009-06-18 20:36
Yes, a direct Roth conversion can now be made from a 401k or 403b plan providing the employee is eligible for distributions from the plan. In most cases, this means having separated from service. These conversions are subject to the 100,000 modified AGI limit just like TIRA conversions, but 2009 is the final year that these income limits apply. Direct conversions do not involve Form 8606, but if they need to be recharacterized, the recharacterization goes to a TIRA account, not back into the originating plan.
One unique option is that a non spouse beneficiary of one of these plans can convert to an inherited Roth IRA account, whereas non spouses cannot convert inherited TIRA accounts to a Roth. This is a somewhat surprising non conformity at present.
Note that a conversion within a plan is not possible. An employee is not allowed to convert pre tax 401k amounts to a Roth 401k option if the employer offers one. Among other things this keeps employer plan administrators out of the recharacterization business.