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Trad 401k to Roth IRA Rollover (Conversion?)
Old 06-12-2021, 11:48 AM   #1
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Trad 401k to Roth IRA Rollover (Conversion?)

I have a year or two window to take 401k distributions free of state tax liability which Iíd like to rollover/convert to Roth IRA. I think the old rule requires using an intermediate traditional IRA. That would negate the state tax exemption. I believe there is a newer procedure that permits direct transfer from the 401k to a Roth but Iím not finding a clear explanation.
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Old 06-12-2021, 12:20 PM   #2
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Interesting idea that if it goes directly from the 401k to the Roth that it avoids state income taxes but if it goes from 401k to tIRA to Roth that it does not avoid state income taxes.

Unfortuntely that ship has sailed for me as I rolled over my 401k into an tIRA almost 10 years ago.
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Old 06-12-2021, 12:36 PM   #3
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Call the 401k provider. The Megacorp 401k I hold at Fidelity allows this. Does require doing it by phone, but there is no extra cost. I just say "please transfer $X from my 401k to my Roth IRA (also at Fidelity)," the agent clicks the appropriate buttons, and it happens.

Not sure how you will avoid state tax on the 1099-R you get from the 401k provider instead of the 1099-R you would get from a tIRA provider but I don't keep track of the ~40 state tax code details.
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Old 06-12-2021, 05:21 PM   #4
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Call the 401k provider. The Megacorp 401k I hold at Fidelity allows this. Does require doing it by phone, but there is no extra cost. I just say "please transfer $X from my 401k to my Roth IRA (also at Fidelity)," the agent clicks the appropriate buttons, and it happens.

Not sure how you will avoid state tax on the 1099-R you get from the 401k provider instead of the 1099-R you would get from a tIRA provider but I don't keep track of the ~40 state tax code details.


++ Very helpful. My accounts are at Fido also. Employer plan accounts get an exemption from state tax but not IRAs. Itís actually limited to 33k so not such a big deal but it is another reason I have not closed the 401k. The exemption applies to employer deferred savings accounts and/or SS up to the limit.
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Old 06-12-2021, 07:47 PM   #5
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Does your 401K have a Roth option ? Perhaps you could covert within the 401K to Roth and then roll it out as Roth to IRA if that's what you wanted.

I have ex-Megacorp 401K at Fidelity as well. I've done the roll over of after-tax contributions directly from 401K to Roth IRA many times (mega-backdoor conversion). I don't see why it would be any different to roll pre-tax conversions directly into a Roth IRA. As posted above, I always had to call to get a CSR to do the partial roll overs, but it was quick and painless.
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Old 06-12-2021, 10:03 PM   #6
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Thatís an interesting idea, Bada bing. Yes I do have a Roth option but I donít know if I can transfer between them.
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Roth IRA conversion
Old 07-17-2021, 05:51 AM   #7
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Roth IRA conversion

Is there a limit to how much I can convert from a traditional 401k to a Roth IRA while still contributing the $6,000 yearly contribution limit?
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Old 07-17-2021, 07:35 AM   #8
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Is there a limit to how much I can convert from a traditional 401k to a Roth IRA while still contributing the $6,000 yearly contribution limit?

No, conversions are separate from annual contributions. Itís best if you can pay the tax on the conversions with separate funds outside your retirement accounts.
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Old 07-17-2021, 10:04 AM   #9
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No, conversions are separate from annual contributions. Itís best if you can pay the tax on the conversions with separate funds outside your retirement accounts.
Yes, when you pay the income taxes with "other money" you actually increase the eventual spendable money in that conversion by your marginal tax rate, 29% in my case.
Some people don't quite understand this point...
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Old 07-17-2021, 12:24 PM   #10
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Yes, when you pay the income taxes with "other money" you actually increase the eventual spendable money in that conversion by your marginal tax rate, 29% in my case.
Some people don't quite understand this point...
That's overstating it. The advantage is not having to pay tax on gains on that extra amount you were able to put in the Roth by paying the tax out of your taxable account. So, 29% * ROI * tax on divs & CGs.
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Old 07-17-2021, 01:16 PM   #11
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That's overstating it. The advantage is not having to pay tax on gains on that extra amount you were able to put in the Roth by paying the tax out of your taxable account. So, 29% * ROI * tax on divs & CGs.
Ok, you stated it more precisely.
Since I have no earned income anymore, I'm able to shelter a bit more $$ this way...
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Old 07-18-2021, 05:26 PM   #12
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What state are you in?
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