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IRA vs 401k conversion to Roth and taxes

Started by Smurfy FIRE, November 02, 2018, 02:52:38 PM

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Smurfy FIRE

I have been reading about IRA conversions to a Roth and am a little unclear on the conclusions about what I have read. My understanding is that if you convert an IRA to a Roth IRA that you must convert everything in your traditional IRA to the Roth IRA and pay the taxes due on it for the year you converted. I don't think you can convert only part of the account, but please correct me if I'm wrong.

However, if you have a 401k does this also apply? Do you have to convert every 401k account if you had more than one employer , thus more than one 401k ?

What about if you have an IRA and a 401k , must you convert both to a Roth...can you just convert one and which one is more beneficial if you didn't take into consideration the fund selections in the accounts?


Generally, you can convert any portion of an IRA or 401k/403b to a Roth and pay taxes on the amount converted.
I am doing partial Roth conversions now, to reduce RMD's in the future.


Depends. I had a Roth 401k converted to a Roth IRA very recently. Some folks have traditional 401ks and move that into a traditional IRA.


You can do partial conversions of traditional to ROTH. A lot of people I see are doing this thanks to the lower rates under the TCJA. Watch though as you may be thrown into a higher tax bracket if you convert a large portion. Also, older individuals receiving Medicare could see premiums go up if they convert to much as it is increasing their taxable income.

Money Ronin

I've been researching this topic for several years now, so unless something has changed recently here is the rule:

1. A 401K must first be rolled over to an IRA before converting to a Roth IRA (if your company offers a Roth 401K, consult your company)
2. You can convert all or a % of your IRAs to Roth IRAs.
3. If you choose to convert a % of your IRAs, you cannot selectively convert IRA A and B, but not IRA C.  You must convert the same % from IRAs A, B and C.
4. If you have multiple 401Ks, you can rollover any number of 401Ks, in its entirety or a %.
5. Only balances sitting in IRAs are eligible for and subject to the Roth Conversion rules.


Be careful with partial conversions.  There are some tax implications on the gains, not just from the part you convert, but as a whole.  I had an IRA (401K rolled into an IRA) and wanted to do yearly backdoor ROTH IRA contributions, but it got messy.  Instead I rolled the whole IRA into a 401K (so I have no IRAs), then did backdoor ROTH IRAs.  The backdoor ROTH is where you contribute after tax money to an IRA (the max is low, $5,500 a year in 2018), then soon after convert it to a ROTH to avoid the income limits in contributing directly to a ROTH.  There are minimal tax implications of doing the conversion, because it is only on the gain.

Smurfy FIRE

Thanks everyone for your input! I have a lot to think about now...