Clueless about IRAs and 401(k)s...

[southernsara]

I've been looking into moving my 401(k) from a former employer to an IRA. I opened a Roth, thinking that I could roll it over into that. Now I read on Merrill Lynch (where the 401(k) is located) that I'll have to roll it over to a traditional IRA first. I've been trying to figure out if there is a difference between a Rollover IRA and a Roth IRA, and now I learn that I might have opened the wrong kind. Can someone please tell me whether or not I can make a custodian-to-custodian transfer (direct transfer?) of my 401(k) to the Roth IRA that I just opened?

[red92s]

As far as I know, a 401k must be rolled into a traditional IRA. The Traditional IRA can then be converted into a Roth, provided you are prepared to pay the income taxes on the conversion amount. I've certainly been wrong before, so don't quote me on any of that.

[buzz]

I believe that, effective 01/01/08, you can roll a 401(k) directly to a Roth IRA.

1-800-FIDELITY

[safari]

Make sure you understand that if you roll over your 401(k) into a Roth IRA account (assuming that is possible), you will be required to pay taxes on the entire balance.

[texastek76]

The big detail to remember here is that your old employer 401(k) was funded with pre-tax dollars. A Roth is funded with taxed dollars which is why you would have to pay the taxes to convert it. (A Roth grows tax free so you don't pay taxes in the other end).

[maat55]

You can spread the roll over into the roth over a few years starting in 2010 I believe. I would only invest into 401's up to the match, then roths.

[sweeps]

I believe that, effective 01/01/08, you can roll a 401(k) directly to a Roth IRA.

Make sure you understand that if you roll over your 401(k) into a Roth IRA account.... you will be required to pay taxes on the entire balance.

Correct on both counts.

[Snave]

This was just on forbes.com I believe. Since your 401k is currently in pre-tax dollars you can roll that money to a TRADITIONAL IRA (which is also pre-tax dollars). The benefit is usually that you have more investment options to choose from than what you do in a company 401K. At this time, that is all you can do. There is a loophole that in 2010 any TRADITIONAL IRA (or portion of one) can be converted to a ROTH IRA. You would owe the taxes on the money b/c you have not paid tax on it yet. However, you will be able to spread the tax liability over 2010 - 2012 so that you do not get hit all at once. I posted on this earlier in another thread that I would imagine in 2010 that you could roll a 401K straight to a roth IRA and pay the taxes, thus cutting out the middle step. Don't know if that will be true, but I have to imagine the fidelity's and ML's of the world will be able to offer that.