401(k) to Roth
I have a client who retired earlier this year with about $80,000 after-tax contributions in his 401(k). He wants to convert the after-tax portion this year to a Roth then convert the balance or some part of the remaining 401(k) to a Roth next year.
Questions:
1. if his income this year is in excess of $100k could he take a tax-free distribution (he’s over 55) and make a contribution to a new Roth with that money as long as his income is below the contribution cap?
2. it seems I read that 401(k) conversions must be total conversions but I’m not sure. Can anyone let me know about that?
3. is there any other pro or con to doing this?
Thanks.
Bill
Permalink Submitted by Alan Spross on Tue, 2009-12-08 21:40
1. He cannot do a Roth conversion of any portion this year if income is over 100,000 MAGI. After 2009, the income limit disappears. If he wants to make a regular Roth IRA contribution (not a conversion) he could use some of his distribution to fund the regular contribution (6,000 max if over 50).
2. Direct conversions from a 401k can be partial if the plan does not require a lump sum be distributed, but he will run into pro rating of after tax with pre tax amounts.
3. If you want to see what is involved to get around the pro rating problem, read the thread titled “After Tax Rollovers” by bhbofford. That provides a way to convert only the after tax amount, but the client must have the money to front the 20% mandatory withholding on the distribution.
Permalink Submitted by William Garrett on Tue, 2009-12-08 22:03
Thanks, Alan. Really appreciate you getting back to me.
Bil