401k Roth conversion for a retiree if in-plan rollover is not allowed
A retiree wants to convert a large traditional 401k to Roth 401k, but the plan allows in-plan rollover only for active employees. He wants to keep his retirement funds in 401k, but not IRA, for strong protection against creditors. What options does he have if any.
Permalink Submitted by Alan - IRA critic on Wed, 2025-03-19 12:52
No easy options.
Most states provide excellent creditor protection for IRAs, so I assume that this retiree does not live in such a state, or if they do now, they might move to a state with limited creditor protection for IRAs, or perhaps a state with better protection for TIRAs than for Roth IRAs. Retiree should carefully determine the extent of IRA creditor protection in current state. It might not be that bad. They should be looking for protection that is not dependent on filing bankruptcy to access the protection.
He cannot do an IRR until this plan extends IRRs to former employees. That may never happen or could take years. If the plan wants to retain retiree assets, they should consider this. If they offer IRRs to current staff they already have the required plan accounting in place.
Retiree could move to a state with excellent creditor protection, then do the direct rollover and convert to Roth if this conversion is that compelling.
Without a move, the retiree could do the direct rollover anyway and convert and purchase a multi million dollar Umbrella and limit high creditor exposure activities.
Retiree could return to work for an employer who accepts rollovers from other plans and provides for IRRs, do the IRR, then retire again and leave the funds in that plan.
Note that even ERISA plans do not provide creditor protection for IRS liens or marital settlements.