Converting from 401K to Roth IRA

[Guest AmyS]

I have a few basic questions regarding converting to a Roth IRA

-Left one company with a 401K to work in a family-run business with no retirement plans. Want to convert to Roth IRA but the company my 401K money is with does not offer Roth's just traditional. Any recommendations (local banks, big firms?)to put this money?

-Have more than 2,000 already in 401K. Once I convert, can I then start contributing a full 2,000 that year?

-The money I converted-Can that ever be withdrawn early?

Thanks for the help.

Amy

[Guest danmar]

Before you can convert to a Roth, you must first roll the 401(k) assets to a traditional IRA and then convert to the Roth.

You can make ongoing contributions to the same Roth IRA account. The amount you convert does not affect your ability to make your $2000 Roth contribution in the same year. Note that you must have at least $2000 in W-2 wages or earned income from self-employment in order to make this contribution.

If you make distributions from your Roth plan, you will be redeeming your Roth contributions first, which are not subject to tax or penalty. After that comes conversion assets, which would be subject to a prmature distribution penalty if you're under 59 1/2 and don't qualify for an exception. This penalty disappears after the converted assets have been in the Roth account for 5 years.

I recommend RothIRA.com as an excellent independant source of Roth info. Also, you may consider working with a financial advisor to implement a SIMPLE IRA or SEP for your family business in order to provide a similar opportunity to save pre-tax as your old 401(k) plan provided.

[This message has been edited by danmar (edited 07-19-99).]