Converting Part of 401K to IRA and then to Roth?

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sf2sv
Posts: 38
Joined: Sat Aug 19, 2017 10:27 am

Converting Part of 401K to IRA and then to Roth?

Post by sf2sv » Sun Dec 10, 2017 2:31 pm

Hi,

I did some searching but couldn't find the answer to this specific question. If you were to leave a job with a traditional 401K, would it be possible to convert say 50% of that amount to an IRA and leave the remaining amount in the 401K? I ask because if one were to expect low income for a few years following the job, it could make sense to use that tax space to convert the traditional IRA to a Roth IRA while in the 15% bracket. However if the 401K amount exceeded the amount I thought I could covert in those few years, I wouldn't want to block myself from a Backdoor Roth in the future by having a bunch of excess $ in the traditional IRA. Does that make sense?

Thanks!

Spirit Rider
Posts: 8139
Joined: Fri Mar 02, 2007 2:39 pm

Re: Converting Part of 401K to IRA and then to Roth?

Post by Spirit Rider » Sun Dec 10, 2017 2:35 pm

IRS regulations allow, but do not require distribution options. Partial withdrawal is purely a function of plan rules.

For many plans it is all or nothing. The only way to know is ask the plan.

retiredjg
Posts: 32963
Joined: Thu Jan 10, 2008 12:56 pm

Re: Converting Part of 401K to IRA and then to Roth?

Post by retiredjg » Sun Dec 10, 2017 3:10 pm

If your old plan allows a partial withdrawal, there is no reason to move from 401k--->IRA--->Roth IRA. You can move money directly from the 401k to the Roth IRA. This way you would not get "caught" with any unconverted money in IRA if you want to use the back door.

sf2sv
Posts: 38
Joined: Sat Aug 19, 2017 10:27 am

Re: Converting Part of 401K to IRA and then to Roth?

Post by sf2sv » Sun Dec 10, 2017 5:20 pm

retiredjg wrote:
Sun Dec 10, 2017 3:10 pm
If your old plan allows a partial withdrawal, there is no reason to move from 401k--->IRA--->Roth IRA. You can move money directly from the 401k to the Roth IRA. This way you would not get "caught" with any unconverted money in IRA if you want to use the back door.
Understood, however my goal was to do it over a few years to ensure I did it while staying in the lowest bracket. So If I did it all at once right as I left the job (which in that year I would be in a much higher bracket) then I would get hit with a much higher tax bill and this wouldn't work.

sf2sv
Posts: 38
Joined: Sat Aug 19, 2017 10:27 am

Re: Converting Part of 401K to IRA and then to Roth?

Post by sf2sv » Sun Dec 10, 2017 5:21 pm

Spirit Rider wrote:
Sun Dec 10, 2017 2:35 pm
IRS regulations allow, but do not require distribution options. Partial withdrawal is purely a function of plan rules.

For many plans it is all or nothing. The only way to know is ask the plan.
Got it, wasn't aware it could differ by plan, I'll have to ask. Thank you

sf2sv
Posts: 38
Joined: Sat Aug 19, 2017 10:27 am

Re: Converting Part of 401K to IRA and then to Roth?

Post by sf2sv » Sun Dec 10, 2017 5:34 pm

Also, I just checked and the plan does indeed allow partial distributions.

retiredjg
Posts: 32963
Joined: Thu Jan 10, 2008 12:56 pm

Re: Converting Part of 401K to IRA and then to Roth?

Post by retiredjg » Sun Dec 10, 2017 6:12 pm

sf2sv wrote:
Sun Dec 10, 2017 5:20 pm
retiredjg wrote:
Sun Dec 10, 2017 3:10 pm
If your old plan allows a partial withdrawal, there is no reason to move from 401k--->IRA--->Roth IRA. You can move money directly from the 401k to the Roth IRA. This way you would not get "caught" with any unconverted money in IRA if you want to use the back door.
Understood, however my goal was to do it over a few years to ensure I did it while staying in the lowest bracket. So If I did it all at once right as I left the job (which in that year I would be in a much higher bracket) then I would get hit with a much higher tax bill and this wouldn't work.
I think you may have missed that I said "partial withdrawal". By that I meant roll a portion of the 401k directly to Roth IRA, skipping the tIRA step.

In November or early December of your low earning years, you can figure out how much you can roll and still stay in the 15% bracket. Then do it. In a few months, a 1099 will arrive telling you to pay tax on the amount you rolled.

sf2sv
Posts: 38
Joined: Sat Aug 19, 2017 10:27 am

Re: Converting Part of 401K to IRA and then to Roth?

Post by sf2sv » Tue Dec 12, 2017 4:08 pm

retiredjg wrote:
Sun Dec 10, 2017 6:12 pm
sf2sv wrote:
Sun Dec 10, 2017 5:20 pm
retiredjg wrote:
Sun Dec 10, 2017 3:10 pm
If your old plan allows a partial withdrawal, there is no reason to move from 401k--->IRA--->Roth IRA. You can move money directly from the 401k to the Roth IRA. This way you would not get "caught" with any unconverted money in IRA if you want to use the back door.
Understood, however my goal was to do it over a few years to ensure I did it while staying in the lowest bracket. So If I did it all at once right as I left the job (which in that year I would be in a much higher bracket) then I would get hit with a much higher tax bill and this wouldn't work.
I think you may have missed that I said "partial withdrawal". By that I meant roll a portion of the 401k directly to Roth IRA, skipping the tIRA step.

In November or early December of your low earning years, you can figure out how much you can roll and still stay in the 15% bracket. Then do it. In a few months, a 1099 will arrive telling you to pay tax on the amount you rolled.
Ah I see, so basically just do the rollover directly annually? I was thinking it had to be done at once, but upon further reading it looks like it can indeed be done over time. Thanks

retiredjg
Posts: 32963
Joined: Thu Jan 10, 2008 12:56 pm

Re: Converting Part of 401K to IRA and then to Roth?

Post by retiredjg » Tue Dec 12, 2017 4:41 pm

The law allows you to do it over time. You'll have to read your plan summary statement or ask someone who knows - your plan might allow unlimited distributions, a certain number a year, or just one and done.

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