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09-28-2013, 06:48 PM
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#1
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Recycles dryer sheets
Join Date: Feb 2010
Posts: 416
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Rollover 401K to a Roth?
My sons girlfriend asked me a question about rolling her 401k into a IRA. She says the place where she is working is discontinuing their 401K and they need to open an account to roll it into. I don't have a lot of details but wanted to throw the question out there. I was wondering if it would be possible to roll it into a Roth IRA, she is only 24 right now.
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09-28-2013, 07:29 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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Probably, though a tIRA could also just be a step along the way. Depending on the size of the rollover, she might not want to roll it all into a Roth if that puts her in a higher tax bracket. It would all count as regular income. A rollover into a tIRA would be tax free, with a little care. Then she can portion it out into a Roth if that makes sense. Given a low income now, it might make sense to consider the Roth.
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09-28-2013, 07:55 PM
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#3
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Recycles dryer sheets
Join Date: Feb 2010
Posts: 416
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She probably only makes $20 to $25,000 a year and only has about $2,000 in the account.
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09-28-2013, 08:14 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Jul 2007
Posts: 1,085
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She should be able to either transfer the amount into a regular IRA or convert it to a Roth IRA. If she converts to a Roth IRA, her taxes will probably increase, depending on the amount that is in the 401k and her tax rate.
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09-30-2013, 12:00 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Apr 2006
Posts: 1,684
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She probably wants a traditional IRA for the rollover. Conversion to a Roth after the rollover is probably a good move for a young person. Given the information you presented, this would likely be the best path for her to take.
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09-30-2013, 04:12 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 4,337
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Call Vanguard on her options. She can definitely roll it over to an IRA and from there to a Roth. I don't know if it can be done in one move.
__________________
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
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09-30-2013, 09:05 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,263
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I think it has to be two moves - one from 401k>tIRA and then from tIRA to Roth IRA - but Vanguard can tell her for sure.
She needs to do the first move. The second is optional. She can do a projected tax return for 2013 and then add in the $2k Roth conversion and see what the tax cost is. If the tax cost isn't very much, then it is probably worth doing in the long run.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-30-2013, 09:50 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,263
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Cool. I guess the advantage of doing it in two moves is you could chose to do it when convenient or in stages if you want.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-30-2013, 12:00 PM
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#10
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,053
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Quote:
Originally Posted by pb4uski
Cool. I guess the advantage of doing it in two moves is you could chose to do it when convenient or in stages if you want.
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Or when the market falls. We haven't done our ROTH conversion this year. If the market drops a lot over the budget and/or debt ceiling decisions then I'll take the opportunity to do this year's rollover. Using Turbotax for tax estimates I know what $ amount I want to convert, and if it happens to be at a much lower NAV price then a larger % of the IRA gets converted.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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09-30-2013, 12:11 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,263
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So you are a market timer after all. I never would have guessed that.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-30-2013, 12:13 PM
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#12
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,053
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Quote:
Originally Posted by pb4uski
So you are a market timer after all. I never would have guessed that.
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Guilty as charged
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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