401(k) to TIRA to Roth COnversion in 2010
I just read an article at another personal finance web site that said I first need to convert a 401(k) plan from a former employee to a traditional IRA before converting that to a Roth IRA in 2010. Is this correct? Or in 2010 my I convert the 401(k) (all composed of pre-tax contributions & employer match) directly to a Roth.
Permalink Submitted by Alan Spross on Thu, 2009-10-08 20:11
It sounds like that article is outdated.
Direct Roth conversions from a QRP first became available in 2008. Therefore, there is no reason that you cannot do this conversion directly from the 401k. Moreover, the 2010 direct conversion income can be deferred to 2011 and 2012 in the same manner as a TIRA to Roth conversion.
Should you choose to recharacterize this conversion for any reason, you will have to open a TIRA account to receive a transfer from the Roth IRA. The funds cannot go back to the 401k in a recharacterization.
Permalink Submitted by Michael Deely on Thu, 2009-10-08 20:24
I think that last point is very important. Without the TIRA middle step, I would have no option to recharacterize later if the account balance declined in value – forcing to pay more tax on the conversion than I would otherwise.
Permalink Submitted by Alan Spross on Thu, 2009-10-08 20:33
Yes, you can still recharaterize if you wish, partial or total. You would just need to open the TIRA account to receive those funds, if you do not already have one.
On the other hand, you can still do the conversion the original way with a direct rollover to a TIRA, and then a conversion from the TIRA. Only real difference is that you need an 8606 to report the TIRA conversion and may not with the direct conversion, depending on the way the IRS designs the 2010 8606 Form.