About 401K to Roth IRA Conversion Rules

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About 401K to Roth IRA Conversion Rules
About 401K to Roth IRA Conversion Rules (Image: Internal Revenue Service Seal)

Converting 401(k) funds to a Roth IRA is a great way to save money for retirement. Roth IRA accounts grow money, and they allow it to be withdrawn tax-free at a given age. At the same time that the account-holder is retiring, he gains access to the money that has been growing tax-free since being rolled into the account. Roth IRA funds grow tax-free because the money used to fund it has generally already been taxed. The IRS rules for Roth IRA contributions are being changed. It's important to not waste time when considering a 401(k) to Roth IRA rollover.

History

Rolling money from a 401(k) account to a Roth IRA is a valid financial planning step. New IRS rules will lift the 100,000 dollar income cap for ROTH IRA contributions in 2010.

Features

Roth IRA contributions are able to be withdrawn without taxation upon maturity. Rolling funds from a 401(k) to a personal Roth account can save significant amounts on tax upon withdrawal.

Potential

Because the income limits are being raised, Roth IRA accounts are becoming more accessible for most income levels. Roth IRA accounts can be used jointly for spouses.

Expert Insight

Roth IRA account rules may change based upon new governmental changes. Tax benefits and rules may change based upon new taxation guidelines.

Warning

Roth IRA accounts do very well for tax-deferred growth. However, if you withdraw funds before you turn 59 1/2 years of age, any amount withdrawn is subject to both taxes and penalties, often based upon a percentage of the amount withdrawn.

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