Direct Rollover From 401k To Roth Ira  

Using the trustee-to-trustee mode of transfer to move the 401k distributions or retirement savings from the 401k account of one’s old employer to one’s own IRA is termed as direct rollover. In this process, the funds never reach your hands, but are just wired or transferred from the old administrator of 401k account to your new Roth IRA account.

Owing to this wire transfer, you are not required to pay any sort of taxes or penalties whatsoever on withdrawal of funds from 401k account.

In case the portfolio of your retirement savings also comprises of the company stock of your employer, you can choose from the following two options available to you:

  • The company’s stocks need not be liquidated and can be wired directly to the Direct Rollover Account.
  • Alternatively, the stock can be sold at the current market rate and the cash thus obtained can be rolled over to the direct rollover IRA account. In this case, you need not pay any penalties or taxes, as long as the rollover of funds is done within the stipulated period of 60 days.

Upon retirement, a direct rollover from 401k to Roth IRA enables you to go on with deferring tax on your contributions until you are 70.5 years old. Thereafter, you will have to start making taxable withdrawals every year. Since the income restriction on availability of Roth IRA accounts is eliminated, the direct rollover scheme from tax-qualified plans, like 401k, to Roth IRAs has gained tremendous popularity among the masses. A direct rollover plan from 401k to Roth IRA is worth considering because of the following reasons:

  • Roth IRA withdrawals at any point of time are not taxable. Minimal penalties on early withdrawals are charged only if the Roth account has not been owned for a minimum of 5 years or if the withdrawals are made before the age of 59.5 years.
  • Moreover, your Roth IRA contributions will be available tax-free to your beneficiaries or heirs after your death.
         However, bear in mind that regular tax at the rate of nearly 35 percent is to be paid at the amount being rolled over to Roth account. In some cases, local and state taxes may also apply to the same. Thus, while there are a number of advantages of a direct rollover from 401k to Roth IRA, it may require a significant sum of money to pay the tax bills.

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Direct Rollover From 401k To Roth Ira




Guidelines-For-Roth-Ira      The income level restriction or the earnings test criteria on the availability of a Roth IRA account was eliminated on January 2, 2010. Since then, people of all income levels are entitled to open a Roth account and avail its benefits. More..




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