How To Perform A 401k Rollover to Roth IRA
When an employee leaves their last employer, they quite often wish to relocate their old 401(k) retirement investing plan. This step avoids building up a collection of 401(k) plans at several old employers over the years, with decentralized asset allocation and unnecessary complexity. A move to centralize your 401(k) plans into a single Roth IRA will permit consolidation, lower running costs and facilitate easier retirement planning. This is applicable for employees with incomes below approximately $100,000; those with incomes significantly above this level might wish to consider rolling the 401(k) over to a Traditional IRA instead where there are no such income limitations.
401k Rollover to Roth IRA is the strict term for this action. Moving funds out of the 401(k) by “rolling over” the funds and into a Roth IRA. Unfortunately things get a little more complex from there. The 401(k) plan is a pre-tax retirement plan and the Roth IRA is post-tax. In order to make the transfer successful you will be required to pay the 10% tax penalty out of pocket. Depending on the current value of our 401(k), this can be a substantial sum to pay.
You will need to select a home for your Roth IRA. This can be a stock broker, bank or mutual fund company. The mutual fund option is a popular one when using one of the larger fund families as they offer a broad range of investment choices and one can diversify widely. The financial institution hosting your Roth IRA should be told that you will be funding the Roth from a 401(k) rollover. Lastly, you will need to contact the 401(k) sponsor to request that the 401(k) is rolled over into the new Roth IRA.
A Roth IRA withdrawal is possible to fund the tax expense from the rollover process, but such a withdrawal will itself trigger further tax consequences too. You will want to ensure that the costs do not outweigh the benefits of such a move.
Tags: 401(k), 401(k) plans, 401k rollover to roth ira, roth ira, roth ira withdrawal
