401k to IRA questions- advice?

[FrugalFish]

DH has an old 401K that he'd like to roll into an IRA.

I understand that he could roll this into a Traditional IRA and later start a separate Roth IRA and own both with no problems. From what I've read online it seems like a lot of people roll 401ks into a Traditional IRA, and then convert those into Roth IRAs later. Is there a significant benefit to doing that versus having the 2 different types of IRAs? I can see that it may be better to pay taxes on it now, versus later, and that in a Roth IRA the money may be more readily available. I'm not really sure which direction we should go.

Any input on the situation? What would you do? The 401k is not a huge amount, but it's not quite pocket change either, it's just a loose end that needs to be tied up- or at least tied differently.

Thanks

Fishy

[disneysteve]

Some people prefer to pay taxes now because either they expect to be in a higher bracket later due to rising income or they expect tax rates to increase in the future.

[humandraydel]

Steve is right. The only reason to convert to a Roth is for (theoretical) tax benefits.

I see you are from So Cal. Being from a high COL area, are you sure you are eligible for Roth conversion? Are you in a high tax bracket? A high tax bracket combined with your outrageous state income taxes may make a traditional IRA more advantageous.

[Hypersion]

In retirement you want both a ROTH and a Traditional IRA. First you withdraw money from the Traditional until you hit your highest marginal tax rate than you withdraw money from the ROTH tax free.

Repeat these step the next year in January.

[MonkeyMama]

Yes, agreed with everyone above. I am in the lowest tax brackets right now so we are doing all ROTHS. But since I don't have a crystal ball for the future, I am happy to have a taxable retirement plan as well (the 2 balances are about equal so doing 1/2 & 1/2 though I didn't exactly intend it).

If you are in a low tax bracket for now I would consider putting as much as I could into ROTHs. If you are just in the average range I would consider 1/2 & 1/2. (If you have a 401k, then I would put it all into ROTHs).

If you are in a high tax bracket it won't matter. You lose all of the tax benefits of IRAs in that case...

[FrugalFish]

Thanks for providing a little more clarity to me.

My gut was to put it into a Traditional IRA and just have that as well as the Roth IRA.

We are not in a high tax bracket. Had we not bought our house before the last major increase in real estate prices, we would not be here. So at least the perk is that we can have Roth IRAs?

Fishy