IRA Rollover

[Guest ucat4]

I recently left an employer and need to either rollover my funds (which are a relatively small amount) to my Roth IRA, new employers IRA, or cash it out.

I would like to put it in my Roth. With that said, do I need to cash it out first (to pay the taxes) then put it in the Roth? Or, could I "roll it over" to the Roth while still paying the taxes on it, but without any extra "cash out" penalty fees?

Any help would be greatly appreciated.....thanks in advance!

[Michael Devault]

Since you can't roll the plan distribution directly into a Roth IRA, the best way to get to the desired result is to first roll the distribution into a Traditional IRA. You should effect a direct rollover where the money goes directly from your plan to your IRA. This type of rollover will avoid income taxation, mandatory income tax withholding, etc.

Then, when the money is in the Traditional IRA, you can convert it to a Roth IRA if you're eligible to do so. In order to be eligible for a conversion, your adjusted gross income has to be less than $100,000 and, if you're married, you have to file a joint return. Upon conversion, you'll have to pay income tax on the amount converted, but no penalties will be asssessed.

Some product vendors will handle this as a seamless, one-step transaction. When you select an IRA vendor, tell them that as soon as the Traditional IRA is set up, you want to convert it to a Roth IRA. Then, when they receive the funds from your former employer's plan, they will take care of the administration.

Hope this is of some benefit to you.

[Guest ucat4]

Yes, what you described makes sense. I appreciate your advice!