401(k), IRA, and Roth IRA Conversion Qs

[RetireEarly]

I tried searching and reading, but couldn't find definitive answers to the following questions:

If you convert a traditional IRA to a Roth, how are the taxes handled? Can you pay them out of pocket rather than out of the IRA?

If I'm unhappy with my company 401(k) choices, can I roll some of the money into a traditional IRA if I'm still working for the company (all is 100% vested)?

Ideally, I'd like to convert some of my 401(k) into a Roth IRA paying the taxes out of pocket. At the least, I'd like more (better) choices by converting to a traditional IRA. Are there any benefits to sticking with the 401(k) that I'm not thinking about? BTW, we still have a defined benefits pension plan, so they don't match any 401(k) contributions. Thanks.

[humandraydel]

Originally Posted by RetireEarly

I tried searching and reading, but couldn't find definitive answers to the following questions:

If you convert a traditional IRA to a Roth, how are the taxes handled? Can you pay them out of pocket rather than out of the IRA?

If I'm unhappy with my company 401(k) choices, can I roll some of the money into a traditional IRA if I'm still working for the company (all is 100% vested)?

Ideally, I'd like to convert some of my 401(k) into a Roth IRA paying the taxes out of pocket. At the least, I'd like more (better) choices by converting to a traditional IRA. Are there any benefits to sticking with the 401(k) that I'm not thinking about? BTW, we still have a defined benefits pension plan, so they don't match any 401(k) contributions. Thanks.

1. You HAVE to pay out of pocket. If you don't pay out of pocket, that money is treated as a distribution and subject to the 10% penalty on top of income tax.

2. You cannot roll over a 401k to an IRA while you are still employed.

3. See #2.

Are you above the AGI cutoff for Roth eligibility? Are the 401k choices THAT bad (i.e. 1.5-2% ER and/or loads)? The tax advantages usually outweigh poor fund choices. Have you considered tax efficient index funds/ETFs in a taxable account? Done right, they can be incredibly tax efficient (close to a 401k even).

[RetireEarly]

I'm below the AGI for Roth contributions, but max them out every year. The 401(k) funds aren't bad and do have low fees (no loads and less than 1% for domestic and a little over 1% for international), but if I could roll over to an IRA, I would probably choose different funds. However, it's certainly not worth paying the withdrawal penalties. Thanks for your help!