401k to Roth IRA Conversion

[BBQ-Nut]

If I have a 401k and keep it as a 401k when I retire (so that I can draw on it between early retirement and SS), can I convert a portion of it to a Roth IRA?

I've heard that I cannot do this and that Roths need to come from job income.

Also, 'later' in life when the dreaded RMDs hit at 70 1/2, can you take RMDs and convert those back into a Roth? Or again, do the rules prohibit doing this because it is not 'income'?

Could I do a Roth conversion for a portion of my remaining 401k before RMDs after age 70?

Thanks!

 

[pb4uski]

If your 401k allows partial withdrawals, you could convert a part of it from the 401k to a tIRA and then convert the tIRA to a Roth. A common strategy is to do annual conversions to the top of the 15% tax bracket (about $73,000 after deductions and exemptions are subtracted from income).

Only Roth contributions need to come from earned income. You can do Roth conversions from a tIRA.

Of course, you'll need to include the Roth conversion amount on your tax return so the conversion may increase your tax bill (which should be paid out of taxable funds rather than via withholding).

You cannot take RMDs and convert those back to the Roth to my knowledge. You gotta give the tax man something to live on.

 

[GrayHare]

To go from 401K to IRA, can the withdrawal check touch my hands, or must it go directly into the tIRA? It'd be nice to take one 401k withdrawal, pay expenses and at year end move any remaining into a tIRA, but I'm guessing that's not allowed and I have to make separate 401k withdrawals for expenses and for tIRA.

 

[pb4uski]

Good guess.

 

[Animorph]

RMD's can't be used to convert. However, you can take additional amounts above the RMD and Roth convert those. The tax situation for that might not be very favorable.

 

[BBQ-Nut]

RMD's can't be used to convert. However, you can take additional amounts above the RMD and Roth convert those. The tax situation for that might not be very favorable.

Thanks everyone for the replies - makes sense.

And to the point above, then this would also apply to the strategy of converting any remaining 401k I have at age 70 to a tIRA and doing the Roth.

Meaning if RMD's kick in and boost our combined AGI to the next marginal bracket, then doing the 401k->tIRA->Roth IRA would mean paying higher taxes due to what the RMDs will be doing at that time.

Right?

 

[Animorph]

Thanks everyone for the replies - makes sense.

And to the point above, then this would also apply to the strategy of converting any remaining 401k I have at age 70 to a tIRA and doing the Roth.

Meaning if RMD's kick in and boost our combined AGI to the next marginal bracket, then doing the 401k->tIRA->Roth IRA would mean paying higher taxes due to what the RMDs will be doing at that time.

Right?

Yep. You want to get all your conversions done before then in most cases.