Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth conversion
Old 02-15-2015, 07:09 AM   #1
Recycles dryer sheets
 
Join Date: Nov 2014
Location: Texas
Posts: 164
Roth conversion

Hello all,
First let me say thanks to all who post on the website frequently.
Ok quick run down 53 Dw 52
In the last couple of years I have max out megcorp savings which is around 50k including their match.
I save roughly $800 a month in aftertax into my tr price.

I was TOLD that when I leave megacorp and roll over my 401k to an Ira that my aftertax can be rolled to a roth! 😁
I am leaving megacorp when I am between 55-59 just all depends how well with my stress level.
Question: When I roll the after tax into a roth do I have to wait 5years before I can touch the money ?



Sent from my iPhone using Early Retirement Forum
__________________

__________________
Terryjm51 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-15-2015, 08:04 AM   #2
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
You were given incorrect information. You can rollover a traditional 401k to a traditional IRA tax free or a Roth 401k to a Roth IRA tax free. You can also convert a traditional 401k to a Roth but that is a taxable event. The only way to get your after tax account into a Roth would be with qualified contributions of 5500 plus 1000 catch up per year. There are many Roth conversion calculators on the web to guide you as to whether you should convert,and if so, how much per year.
__________________

__________________
Gatordoc50 is offline   Reply With Quote
Old 02-15-2015, 08:12 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,035
Quote:
Originally Posted by Gatordoc50 View Post
You were given incorrect information. You can rollover a traditional 401k to a traditional IRA tax free or a Roth 401k to a Roth IRA tax free. You can also convert a traditional 401k to a Roth but that is a taxable event. The only way to get your after tax account into a Roth would be with qualified contributions of 5500 plus 1000 catch up per year. There are many Roth conversion calculators on the web to guide you as to whether you should convert,and if so, how much per year.

op is talking about after tax contributions to his 401k, which he indeed can move to roth, if he actually made after tax contributions.


Sent from my iPhone using Early Retirement Forum
__________________
dallas27 is offline   Reply With Quote
Old 02-15-2015, 08:13 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,490
No Gatordoc, they changed that recently. Currently, you can roll after-tax 401k balances into a Roth account. The IRS issued a memo allowing that last year. Prior to last year, it was unclear so there was some tax risk if you did it.

See http://www.kiplinger.com/article/ret...onversion.html

However, the recent Obama budget proposes to close down this loophole. I can see the logic as the after-tax 401k rolled into a Roth is a huge runaround the Roth contribution limits.

On the OP's question, I think you do have to wait 5 years to withdraw the contributions without penalty. So if you need the money to live on, just take it in cash, pay the tax and invest the cash, rather than roll it into your Roth.

See http://fairmark.com/retirement/roth-...tion-overview/
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 02-15-2015, 08:15 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,050
Quote:
Originally Posted by Terryjm51 View Post
Hello all,
First let me say thanks to all who post on the website frequently.
Ok quick run down 53 Dw 52
In the last couple of years I have max out megcorp savings which is around 50k including their match.
I save roughly $800 a month in aftertax into my tr price.

I was TOLD that when I leave megacorp and roll over my 401k to an Ira that my aftertax can be rolled to a roth! 😁
I am leaving megacorp when I am between 55-59 just all depends how well with my stress level.
Question: When I roll the after tax into a roth do I have to wait 5years before I can touch the money ?
https://www.kitces.com/blog/irs-noti...th-conversion/
...should be helpful.

You need to wait 5 years to withdraw the converted amount, not earnings, without penalty. You can be under 59.5 as well.
__________________
jim584672 is offline   Reply With Quote
Old 02-15-2015, 08:16 AM   #6
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Quote:
Originally Posted by Gatordoc50 View Post
You were given incorrect information.
The OP is in a plan that lets a participant contribute well over the IRA limits. He indicated he is maxing out the contributions at $50k/yr (bravo to OP). He has two different accounts. Exxon-Mobil has this type of system and other companies surely do. Unfortunately, I'm not an expert on rollover rules. Hopefully, we'll have an expert on this topic show up.

Unfortunately, the OP didn't say who told him about the Roth rollover. If it was a company benefits expert, I suspect it is correct. If it was Joe down the hall, I'm not so confident.

I'm personally surprised at being able to roll the after tax account into a Roth. It seems like a questionable double dip but I certainly can't say I see the logic in the myriad tax rules available. I may have an opportunity to talk with someone later today that knows about these types of plans. If I do, I'll repost later today or tomorrow.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 02-15-2015, 08:23 AM   #7
Recycles dryer sheets
 
Join Date: Jul 2011
Location: Minneapolis
Posts: 104
We just did this with DW's 401k to ira rollover. Details in here:

Isolating Basis for a Roth Conversion - Fairmark.com Fairmark.com

Conversions are subject to a 5 yr wait to withdraw without penalty if you're under 59.5 but if you have a Roth with regular contributions those can be taken first. See the following about "laddering" Roth money:

Stocks — Part XX: Early Retirement Withdrawal Strategies and Roth Conversion Ladders from a Mad Fientist

Hope this helps! I would bookmark both Fairmark and JHCollins as these sites have lots of good info!
__________________
BrianB is offline   Reply With Quote
Old 02-15-2015, 08:25 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,936
This doesn't answer your 5 yr question but might be of interest:
Isolating Basis for a Roth Conversion - Fairmark.com Fairmark.com

You might want to post your question at the fairmark.com forum (retirement subforum). If you get an answer from Alan S.......you're good to go.
__________________
kaneohe is offline   Reply With Quote
Old 02-15-2015, 08:25 AM   #9
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
Wow. You can rollover a 401k to a Roth without paying tax and convert taxable to nontaxable? I know you can rollover a 401k to a Roth and pay tax. That is basically a conversion. This is surprising.
__________________
Gatordoc50 is offline   Reply With Quote
Old 02-15-2015, 08:29 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,936
Quote:
Originally Posted by Gatordoc50 View Post
Wow. You can rollover a 401k to a Roth without paying tax and convert taxable to nontaxable? I know you can rollover a 401k to a Roth and pay tax. That is basically a conversion. This is surprising.

OP is talking about rolling over the after tax portion of 401K. Taxes paid already. see the fairmark article which gives more details.
__________________
kaneohe is offline   Reply With Quote
Old 02-15-2015, 08:32 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,490
Quote:
Originally Posted by Gatordoc50 View Post
Wow. You can rollover a 401k to a Roth without paying tax and convert taxable to nontaxable? I know you can rollover a 401k to a Roth and pay tax. That is basically a conversion. This is surprising.
It was new and surprising to me when I first retired too. I actually found out about it after I had taken my after-tax 401k in cash for spending, but fortunately my balance was not very large so it wasn't a big mistake.

Like I said, it wasn't totally clear until last year so there was some tax risk associated with doing it prior to last year but it worked out for those who did.

What I was surprised at was that I never received anything to include the growth of the after-tax 401k in my taxes (for example, if the check I received was $10k and my after-tax contributions were $8k I would have expected the $2k difference to be taxable in the year I received it or in the year it is rolled over to the Roth (like a conversion is taxable).
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 02-15-2015, 08:34 AM   #12
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
Quote:
Originally Posted by BrianB View Post
We just did this with DW's 401k to ira rollover. Details in here: Isolating Basis for a Roth Conversion - Fairmark.com Fairmark.com Conversions are subject to a 5 yr wait to withdraw without penalty if you're under 59.5 but if you have a Roth with regular contributions those can be taken first. See the following about "laddering" Roth money: Stocks — Part XX: Early Retirement Withdrawal Strategies and Roth Conversion Ladders from a Mad Fientist Hope this helps! I would bookmark both Fairmark and JHCollins as these sites have lots of good info!
Ok. That makes sense. Similar to converting a nondeductible TIRA to a Roth. Only the earnings are taxable.
__________________
Gatordoc50 is offline   Reply With Quote
Old 02-15-2015, 08:42 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 9,907
I did this several years ago when it was still a grey area. Don't know about the 5 year rule, as I plan to leave it alone for at least 5 years.

I second reading Alan S. comments at Fairmark. He is very well informed and credible.
__________________
Yes, I have achieved work / life balance.
travelover is online now   Reply With Quote
Old 02-15-2015, 08:47 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,050
I wish they would have clarified this years ago. I would have been maxing out my pre/after contributions, oh well, too late now.
__________________
jim584672 is offline   Reply With Quote
Old 02-15-2015, 08:52 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,490
Quote:
Originally Posted by jim584672 View Post
I wish they would have clarified this years ago. I would have been maxing out my pre/after contributions, oh well, too late now.
+1
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 02-15-2015, 09:49 AM   #16
Full time employment: Posting here.
 
Join Date: Sep 2013
Posts: 513
Quote:
Originally Posted by jim584672 View Post
I wish they would have clarified this years ago. I would have been maxing out my pre/after contributions, oh well, too late now.
Me too. At least I'll stuff in the max during my OMY. Anyone know whether the $52K total contribution limit for 2014 is being increased for 2015?

Assuming one maxes out ones pre-tax + catch up contributions that still leaves $28K/yr after tax that can be converted to Roth on retirement. One year of this won't make a huge difference to my retirement assets, and I'll still be doing traditional taxable conversions every year from 55 to 70, but for those earlier on in the careers it could really help.
__________________
stepford is offline   Reply With Quote
Old 02-15-2015, 10:42 AM   #17
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,849
Quote:
Originally Posted by pb4uski View Post
...
On the OP's question, I think you do have to wait 5 years to withdraw the contributions without penalty. So if you need the money to live on, just take it in cash, pay the tax and invest the cash, rather than roll it into your Roth.

See Distribution Overview - Fairmark.com Fairmark.com
In the text on that link, above, puts Roth money into various withdrawl buckets, to be pulled out in a specific order across all Roth accounts. I'm confused about this.
Quote:
  • Regular contributions
  • Taxable portion of first conversion
  • Nontaxable portion of first conversion
  • Each subsequent conversion, in order, with the taxable portion coming out first for each conversion
  • Earnings (any increase in value occurring inside the Roth IRA)
Given that someone started their Roth account five* or more years ago, the first bucket comes out tax and penalty free, no matter your age, right?

My question comes on the conversion money. How can you have a "taxable portion" in a Roth account? I thought everything in a Roth already had taxes paid on it. Should that be "formerly taxable portion"?

For example, say you converted $10,000 from a tIRA that had 10% non-deductable contributions. So when you converted, $1,000 went in tax-free, and you had to pay tax on $9,000. So you paid tax on the $1,000 a long time ago, and you just paid tax on the $9,000. So why is the conversion split-up into taxable and non-taxable portions? And what difference would it make to the tax calculation in the year you pulled it out?


* calculated by tax year, so wall-clock time can be less...not the point.
__________________
sengsational is offline   Reply With Quote
Old 02-15-2015, 11:23 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,490
I admit that taxable/nontaxable pieces are confusing.... I was focusing on the
Quote:
If withdrawn before the first day of the fifth year after the year of the conversion: no tax, but will be subject to 10% early withdrawal penalty if you’re under age 59 unless an exception applies.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 02-15-2015, 11:36 AM   #19
Recycles dryer sheets
 
Join Date: Nov 2014
Location: Texas
Posts: 164
Stepford yes the $52 is being raised I believe to $53k.
__________________
Terryjm51 is offline   Reply With Quote
Old 02-15-2015, 11:51 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,050
Trying to understand..
-----
Taxable portion of a conversion

Applies only when the lifetime total of withdrawals from all Roth IRAs exceeds the lifetime total of regular contributions to Roth IRAs plus the lifetime total of earlier conversions.

*If withdrawn before the first day of the fifth year after the year of the conversion: no tax, but will be subject to 10% early withdrawal penalty if you’re under age 59 unless an exception applies.

*Beginning on the first day of the fifth year after the year of the conversion can be withdrawn at any time with no tax and no penalty.

*Special rules apply to withdrawals of amounts converted in 2010.
-----
Example:
All Roth IRAs aggregated:
1999 contributed $2,000
2000 contributed $2,000
2001 contributed $2,000
2008 conversion $20,000
Accounts are now worth 40,000.

So lifetime contribs/convs is $26,000. So withdrawing anything over $26,000 would have a 10% penalty if you’re under age 59?
__________________

__________________
jim584672 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Can I do a Roth IRA conversion if my AGI is over the Roth limit? starsfan18 FIRE and Money 20 01-03-2012 03:39 PM
Roth - Traditional - Roth Conversion??? CorporateSoldier FIRE and Money 4 03-10-2011 10:07 PM
Strategy for Roth 401k to Roth IRA conversion and withdrawals sweng85 FIRE and Money 9 04-21-2009 11:28 PM
Roth Conversion and Financial Aid TromboneAl FIRE and Money 0 06-27-2005 08:11 AM
head of household/Roth conversion unclemick FIRE and Money 13 08-03-2004 09:43 AM

 

 
All times are GMT -6. The time now is 01:07 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.