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Rolling over a traditional 401k to a Roth question
Old 03-01-2009, 01:01 PM   #1
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Rolling over a traditional 401k to a Roth question

I'm trying to help my Dad out with this one. He has a traditional 401k and wants to roll it over to a Roth IRA when he retires. He will probably be 68-1/2 when he retires.

So if he dose not roll it all over by the time he is 70-1/2 he will have to take the RMD each year the way I understand it (I know they changed it for 2009 but I figured they would go back to the usual way after that).

It would benefit him to roll his 401k over to a Roth IRA over many years if possible so that he doesn't get jacked up into higher tax brackets.

My question is if he is 70-1/2 and still has not yet rolled over every bit of his 401k to a Roth IRA and is forced to take RMD can he pay the taxes on the RMD and roll that over to a Roth IRA or is he forced to take the RMD out of his 401k and can not roll it over to a Roth at that point?

Because it would benefit him to spread the Rollover to a Roth over many years if possible.

Jim
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Old 03-01-2009, 01:16 PM   #2
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You have two maybe 3 questions. To #1 and #2 the answer is no; to #3 it is yes. However in 2010 he can roll the entire thing (which would be all with the 2009 waiver of taking that years RMD) and take two years to pay the taxes - I am still trying to figure out what the benefit of this is tax wise - the way I see it is that it is none. It only lets you put the taxes on an "installment plan". As you explain it, in his case, he could do the roll to ROTH in two years and avoid some of the tax hit (move 50% in 2009 and 50% in 2010). May be he could do 1/3 three times depending of the timing of his retirement and the year he reaches 70.5 years old. I suggest you get Publication 590 from the IRS Site. http://www.irs.gov/pub/irs-pdf/p590.pdf
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Old 03-01-2009, 07:03 PM   #3
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As always Thanks OAG!

I guess what my biggest question is if my Dad has money still in his 401k at age 70-1/2 and has to take a RMD if he can take the amount of the RMD pay the taxes on it and roll it into a Roth IRA?


Jim
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Old 03-01-2009, 07:30 PM   #4
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I think I may have found the answer if I'm reading it right on the 590 form that he can't roll over a 401k RMD to a Roth IRA.

Jim
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Old 03-01-2009, 10:26 PM   #5
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I guess what my biggest question is if my Dad has money still in his 401k at age 70-1/2 and has to take a RMD if he can take the amount of the RMD pay the taxes on it and roll it into a Roth IRA?
No, he can't. But why would he want to? There are plenty of nice tax efficient investments he can use instead or he can give the money away to get it out of his estate. Once he has taken out the RMD and paid taxes on it, he can rollover any amount he wants to a Roth IRA as a separate taxable transaction.

He can also structure his other investments so that he pays virtually no taxes on them. This will help reduce the taxes on any RMDs and rolloverrs to his Roth.
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