Can I Roll My 401k into a Roth IRA?

Can I Roll My 401k into a Roth IRA?

This question comes up more times than I can count. Can I roll my 401k into a Roth IRA?

And the simple answer is, not directly, but indirectly you can. And what do I mean by that?

Unless you have a Roth 401k, in which case you could roll it directly into a Roth IRA, but hardly anyone has a Roth 401k since they’re so new and there’s really not the same tax benefits to a company as a traditional 401k, which is why I don’t think you’re going to see them offered very much. But that’s a whole other topic for a whole other day.

A 401k has to be rolled first to a traditional IRA, because the IRS says you have to go from like product to like product, and what they’re talking about when they say “like” is the taxation on that product. And then you take it from the traditional IRA and you then place it into a Roth IRA.

Now know when you do that, that’s when you’re going to have this taxable event that comes up. And yes, there are ways to spread out your taxes. And yes, there are rules about being able to put money into a Roth IRA, so before you do it, make sure you talke to a qualified professional to see if it can be done in your situation, because every situation is different.

That’s the reason why the tax code is as big as it is. It’s because there’s so many stinking rules out there, and you’re left trying to go on the Internet and find the right ones. Hey, the Internet’s going to get you so far, but at some point you’re going to have to talk to someone and explain to them your situation, and they can tell you definitively what your options are. But just know that it’s got to be that indirect way. You go first to a traditional IRA and then from the traditional IRA into a Roth IRA.

That’s how you get your money from a 401k into a Roth IRA.

I’m Pete Mitchell, and I look forward to sharing more on the markets with you later.