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Copyright © 2022, Ed Slott and Company, LLC Reprinted from The Slott Report, Thursday, April 21, 2022, with permission. Original URL. Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
By Ian Berger, JD
IRA Analyst
Question:
Hello,
I’m learning a lot from Ed Slott’s latest book, “The New Retirement Savings Time Bomb,” but I do have a question on 401(k) Roth IRA conversions. I’m recently retired with a company 401(k). I’m leaning towards keeping the 401(k) (rather than rolling it into my IRA). Is it possible to do an annual direct conversion (partial) from my 401(k) to my Roth IRA, keep the remaining funds in the 401(k), and repeat the process every year until reaching RMD age?
Thank you,
Marc
Answer:
Hi Marc,
Glad you’re enjoying the book. You can do partial conversions of your 401(k) funds to a Roth IRA as long as the plan allows you to take partial distributions of your account balance. Some plans require participants to take out their entire balance or none at all. So, check with your plan administrator or HR. If you are allowed to do partial distributions, make sure to do a direct rollover, rather than a 60-day rollover, so you can avoid mandatory income tax withholding.
Question:
I am 78 and have been taking RMDs as required. For 2021 I took my RMD and a few weeks later did a partial Roth conversion. For 2022, I am considering doing a QCD for the full RMD required, then later, doing a partial Roth conversion (and paying taxes on the conversion.) I suspect this process is OK, the QCD meeting the RMD requirement. Correct?
Many thanks,
Gil
Answer:
Hi Gil,
That will work. If you are subject to RMDs, you must take the RMD first before doing a Roth conversion in the same year. But if you make a QCD that fully offsets your RMD, there’s no RMD left to take before you subsequently do the conversion.
Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of the FINRA website for additional information.
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