Roll money from 401k to IRA to Roth?

[Guest JKrowiak]

I'm opening a Roth IRA this year, and wish to use money from my 401k. I realize that I would need to roll the funds into a qualifying IRA before converting the IRA to a Roth IRA. What's the downside? Any tax/penalty consequences?

[Mary Kay Foss]

There should be no problems. You'll want to have the funds transferred directly to the IRA custodian so there is no federal income tax withheld. When you transfer from the traditional IRA to the Roth IRA, you'll want that handled by a transfer as well. The Roth and the traditional IRA can be with the same custodian.

The other thing to be sure of is that your 401k allows inservice distributions. If only hardship withdrawals are allowed the consequences of your plan could be severe.

[Guest Matt Tuttle]

Don't forget, there are taxes on your transfer from the traditional to the Roth IRA, but presumably you have already weighed that against having no taxes due on retirement distributions.

Matt Tuttle

203-609-9077

http://www.wealthadvisors.bigstep.com