Rollover of 401k to Roth IRA - need help please

[Guest pinkshell]

Hello. I am 29 years old and recently resigned from my job. I am currently looking for a new FT job and am doing some freelance work for my former employer (just a few hours a week). I have about 20k in a 401k that I would like to rollover into a Roth IRA. Here are my questions:

1. Is a rollover into a Roth IRA the "right" thing to do? Let me add that my salary was 80k and my next job will be in the same range. I am getting married in July of 2009 and my fiance makes about 100k. Since I believe we will be over the Roth IRA salary limit once we are married, is it worth it for me to even open one now since I won't be able to contribute after I am married?

2. If I understand a Roth IRA correctly, you have to be earning money in order to open one and contribute. Since I am unemployed, am I even eligible to open one? What about the money I am earning from my freelance projects, does that count?

Thank you in advance for any advice you can give me. I have tried my best to educate myself reading articles online but came up empty regarding my question #2.

[K2retire]

You are eligible to roll over money into an IRA, Roth or otherwise, even if you are not earning any money currently. The current earnings are only required to make new contributions. You are also correct that your fiancee's income will prevent you from rolling into a Roth after you are married, until the law changes (which I think is scheduled to be in 2010).

A year in which your earnings are down due to a period of unemployment is potentially a good time for such a move. But with your cash flow also down, do you have enough money to pay the taxes without using the 401(k) money to do it?

At your age you stand to benefit greatly from the tax free accumulation of wealth over a long period that a Roth provides. But you also have to believe that the laws won't change significantly in the next 30 years. Your grandparents were told they would never pay taxes on their Social Security income, but now they do.

There are many possible advantages to rolling those funds into a Roth, but there is no sure answer either way.

[Guest allancoleman]

I just completed earlier this month , pinkshell , a institute - to - institute , 401(k) rollover transfer to my Vanguard Roth account . The Roth conversion deadline for these is end of calendar year , December 31st , instead of the tax deadline of April for contributory Roths . Took approximately 10 days of which 8 were business days . In the past the IRS Roth conversion regulations required that you rolled over a 401(k) to a rollover IRA and then did a Roth conversion out of that traditional IRA to make it a taxfree Roth . As of this year , 2008 , institute - to - institute transfers from a deferred 401(k) straight to a Roth are possible without the intermediate phase of the rollover to a traditional IRA that was necessary in the past to get money from a deferred account like a 401(k) to a taxfree Roth account .

You'll receive a 1099 from your 401(k) custodian on the transfer amount and pay oridinary income tax rates on that amount as a distribution . You can accomplish all of this online with Vanguard . Just have your 401(k) account data information in front of you as you fill out the application for this transaction on line with Vanguard . Next thing you know the computer prompt is telling you to print out your application , sign it and mail it off to Vanguard at their Valley Forge mailing address . Vanguard will create a Roth account number for you and you can log in to your new Vanguard Roth account and check your personal Vanguard account internal email for updates on your transaction request and a updated estimated timeframe on when it'll be completed . This internal account email system is neat cause it informs you at what stage your transaction request is at and whose court the ball is in at that time . Saves you and Vanguard a lot of phone time tracking your individual transaction request .

I've also done three other Roth - to Roth , institute - to - institute transfers from Schwab & Fidelity to my Vanguard Roth account in the past and these were all handled on line too without speaking to anyone at Vanguard . Just make sure your printer is hooked up to your computer when you begin this transaction process . And of course if you have any difficulty , you can always call Vanguard to assist you too . Good luck . Taxfree forever Roths under the current tax code are the best thing since sliced bread . For more on Roths , you can visit :

http://www.rothira.com