retirement

Transfer from 401(k) to Roth IRA?

Don TaylorQuestionDear Dr. Don,
I participate in my employer's 401(k) plan. I am interested in opening a Roth IRA through my local credit union where I do my banking. Is it possible to take money out of my 401(k) and directly transfer it to a newly created Roth without penalty? If possible, how complicated is it? Also, if the IRS does allow this, what is the maximum amount you can transfer per year?
-- Charlie Choices

AnswerDear Charlie,
In general, unless you're over age 59½ or face a financial hardship, you'd have to leave your job to have the portability you seek in your 401(k). Separation from service gives you the option to do a rollover contribution to a Roth IRA. Until then, you need to make your best investment decisions among the options offered you in your employer's 401(k) plan.

The IRS Publication, 401(k) Resource Guide -- Plan Sponsors -- General Distribution Rules, provides more background information on distributions, as does IRS Publication 575, Pension and Annuity Income.

You can also review the plan documents from your employer. The plan documents will spell out your ability to withdraw your elective deferrals prior to your separation from service.

If you don't like the plan's investment options, you can lobby your employer for more choices and/or lower-cost options. You didn't supply any specifics about your portfolio or investment goals for your retirement savings, but a Roth IRA with your credit union, unless you're talking about the brokerage arm of your credit union, is a very conservative choice for a Roth IRA account.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

News alert Create a news alert for "retirement"

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Get your shots and stay healthy

Vaccinations are free for Medicare participants and people insured under the ACA.  ... Read more

advertisement
Partner Center
advertisement

Connect with us