We are independent & ad-supported. We may earn a commission for purchases made through our links.
WiseGEEK

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

How do I Convert a 401k to a Roth IRA?

By Felicia Dye
Updated May 17, 2024
Our promise to you
WiseGEEK is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGEEK, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

If you want to convert your 401k to a Roth IRA, contact the administrator of your current plan and inform her of your decision. You need to open the Roth IRA account before you attempt to convert the funds. Make sure the funds currently in your 401k plan are transferred directly to the new account. To allow the funds to be distributed to you can be costly and problematic.

There is a reason that you may have heard that you could not roll over a 401k to a Roth IRA. At one time, this was not allowed. The rules changed in 2008. Now, 401k retirement funds can be converted directly.

Converting a 401k to a Roth IRA requires some consideration. For example, you need to know that if the funds that are converted would be taxable, then they must be reported as income. This means that although you can convert your 401k to a Roth IRA, you need to be ready for the tax bill. You will not have to pay all of it in the same year that you convert the funds. The tax liability can be spread over a three-year period.

Also, you need to make sure you are not planning to withdraw the 401k funds that you convert into the Roth IRA for at least five years. Otherwise, you will be liable for a penalty. Once you understand the basics and you make a firm decision, you should go ahead and open a Roth IRA. Then, let the administrator of your current plan know that you plan to convert the funds.

When you notify the administrator that you no longer want to participate in the 401k program, she may send you a check. If this happens realize that 20 percent of your money has likely been deducted. You should not opt to receive your retirement funds this way. The best option is to have the funds sent directly from the 401k to the Roth IRA.

Do not fret if you receive a check, however. Send it back and tell the plan administrator where to forward the funds and the 20 percent deduction should be returned. If you receive a check and for some reason you decide to keep it, you only have 60 days to deposit it into a Roth IRA. If you are willing to pay, a lot of the hassle involved in converting a 401k to a Roth IRA can be avoided. There are services available especially for this purpose.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
See our Editorial Process Share Feedback

Related Articles

Discussion Comments

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.