401K rollover to IRA and conversion to Roth

[Guest nukejohn]

I need the help of some experts in 401K rollovers. Here's a situation and I'm going to talk in round numbers.

Let's assume a 48 year old person has $1,000,000 in his 401K and is considering leaving his employer and changing to a new job. Let's assume he leaves Jan 1, 2004. First question, what is a reasonable time it should take for a 401K fund manager to rollover the 401K into rollover IRA assuming it would be rolled directly to a rollover IRA brokerage account at Fidelity.

Okay, now let's assume it is mid Feb and the $$ is in a rollover IRA. Also, assume that you know of a stock(s) that has the potential to double in 2004. In the mid Feb 2004 time frame (or as soon as the $$ gets into the rollover IRA), could you convert the Rollover to an existing Roth IRA (or a new Roth IRA??) that was opened in 1998 and gradually average up if the stock(s) are indeed rising. Okay, now imagine it's the end of 2004. If the Roth has lost slightly or gained less than 20%, could you just "recharacterize" it back to a regular IRA with no tax consequences? I realize you have to keep your income below 100 K (I think) in order to roll the IRA over into a Roth.

If the Roth has gained say 60% or more during the course of 2004, then when you file the 2004 tax return you'd have to pay the tax on the 1,000,000 converted in Feb. 2004. So, now assume it's April 2005 and taxes are due. Can you withdraw $400,000 from the Roth (I know you would have to pay the 10% early withdrawal penalty) and use that $$ to pay the taxes on the Roth conversion?

If this strategy works and is legal, then there is little risk. If the Roth doesn't go up enough , you can simply recharacterize it to a regular IRA. If the Roth does go up by 60% to 100%, then you can use the profits to help pay the taxes and you then have a tax free retirement next egg.

I would appreciate comments about the overall strategy. I realize that most people would laugh at getting a 60%-100% return in this market, but for the sake of argument, just humor me on this and address the strategy.

Thanks,