Only eligible distributions can be converted, but there are no restrictions on how much or how little you can convert at a time. Only eligible distributions from a b plan can be converted into a Roth IRA. Only distributions from your b taken after you've left the employer sponsoring the plan can be rolled over -- hardship distributions aren't eligible even if the hardship is taken care of first. Also, you're not allowed to roll over required minimum distributions.
If you have a f plan, you're not allowed to convert those funds at all -- those plans are ineligible. Your b plan offers pretax savings, which means you've never paid taxes on the money in your account. Roth IRAs, of course, are funded with after-tax dollars, because they offer the promise of tax-free distributions. So, when you make a conversion of part of your b plan to your Roth IRA, Uncle Sam requires that you pay taxes on that money. So, it's often best to convert in a year you fall in a low income tax bracket.
In some cases, you might not want to sell your assets in your b plan before converting them to your Roth IRA. If so, that's not a problem. However, unless you anticipate that your tax bracket in the future will not be lower than it is currently, it may not make sense to convert, because you'll be paying tax on your conversion now at a higher rate rather than in the future at a lower rate.
While a Roth IRA gives you more freedom in terms of investment choices, you will lose access to the fund options in your current plan. If the performance of your is sub-par, of course, then converting can make more sense. Conversion makes more sense if you have a longer time horizon to retirement, since that will give your assets a longer time to grow in the tax-free wrapper of your Roth IRA.
John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.
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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Retirement Planning Retirement Savings Accounts. Key Takeaways If you are a government or non-profit employee, you may have a b.
In this case, your savings in this plan can be rolled over, like assets in a k. There is no penalty for early withdrawals but you must take a minimum distribution from age If you have a b but are not a government employee, the rules are different. The f , limited to highly compensated employees, also has different rules.
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