direct rollover to Roth IRA
I have a client who is retiring and wants to put about half of his pre-tax 401(k) into a Roth IRA. I was wondering if it is better to roll it directly to a Roth or to put it in a traditional IRA first and then do a conversion.
Thank you for your help.
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-14 18:57
It does not make much difference unless he has non deductible contributions in his TIRA or after tax contributions in his 401k. In that case, he should convert from the retirement account that has the highest % of basis since it will reduce his conversion taxes. If he combines them before converting, his basis % will be the weighted average. Otherwise, it does not make any difference except that if he converts directly from the 401k, he does not have to file Form 8606 to report the conversion.
Permalink Submitted by [email protected] on Tue, 2013-05-14 22:01
What about recharacterization? Can he still recharacterize if he goes directly into the Roth IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-14 22:24
Yes. The recharacterization transfer is made to a TIRA account, not back to the 401k. Therefore, recharacterization options are the same either way.