Dear Dr. Don,
I’m currently unemployed and I have a 401(k) still with my previous employer. Can I convert the 401(k) plan to a Roth IRA by transferring the money from the 401(k) to a traditional IRA before converting it to Roth IRA? Or, can I convert it directly from a 401(k) to a Roth?
— Tuyen Taxing
You no longer have to take the intermediate step of rolling the money into a traditional IRA before moving the money into a Roth IRA. The law changed with the 2008 tax year.
Here’s part of what IRS Publication 590, Individual Retirement Arrangements, has to say about the change:
Prior to 2008, you could only roll over (or convert) amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. Beginning in 2008, you can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse’s):
- Employer’s qualified pension, profit-sharing or stock bonus plan (including a 401(k) plan),
- Annuity plan,
- Tax-sheltered annuity plan (section 403(b) plan) or
- Governmental deferred compensation plan (section 457 plan).
Other rules also apply, so it’s important to carefully read the relevant portion of IRS Publication 590 or to consult with a professional financial or tax adviser who understands the rollover rules.
You haven’t given me any details about your financial situation, other than you’re currently out of work. I recommend running your plan to roll over your 401(k) to a Roth IRA by your tax professional to see if he or she thinks it’s the right thing for you to do.
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