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Must-Know Rules for Converting Your 401(k) to a Roth IRA

The Bottom Line

Ideal candidates for rolling employer retirement plans into a new Roth IRA are those who do not anticipate taking distributions from the account for a number of years. Those who convert a 401(k), of either type, into a new Roth IRA must pay a 10% penalty on any money they withdraw from the Roth if they withdraw money within five years from the conversion.

Those aged 59½ or older are exempt from the 10% early withdrawal penalty as are those who transfer the 401(k) funds into an existing Roth IRA that was opened five or more years ago. This exemption allows the rolled-over 401(k) funds to also be withdrawn without penalty.

Source: Must-Know Rules for Converting Your 401(k) to a Roth IRA

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