captkdobbs

So at retirement, you can convert your 401(k) to an IRA with no tax implications and it'll still be subject to Minimum Required Distributions (MRD) at age 70 1/2.

The Roth IRA is NOT subject to MRD, but the Roth 401(k) IS subject to MRDs. (still doing research on this because there is some conflicting info out there)

My question for you gurus: can I convert my Roth 401(k) to a Roth IRA at retirement (or any other time) the same as I convert my regular 401(k) to an IRA, thus adopting the 'no MRD' status of my Roth?

I've learned quite a bit about other financial research here, I thought I'd tap into the collective.
TIA

higney85

Karl,

You can do a conversion, but have to convert everything...at least how my fidelity guy presented it. Sounds great, but you will be taxed at current rate for everything on a non-roth (aka- taxable) basis. So whatever you move, taxable, hits that year. Run the numbers. Cry. Yea. You could do a conversion now of 401k assets, pay the taxes, put allocations to Roth 401k going forward to the max (employee only) and have a split... that would help in a pool of funds, but still a high tax burden now (ironically at S&P highs..). Remember the company DC is all taxable while payable (until you retire).

Other options are to plan for and take the tax hit with a conversion now, wait for a bear market to convert, take a tax hit in retirement for a roll over to a Roth IRA, change Your elections now to Roth to offset the burden, or plan that the Delta 401k will be taxable in retirement. There are trust options, but I’d advise someone of that specialty to walk you into that with pitfalls to clear based on situation. You can backdoor a Roth IRA, personal savings/investments, side gigs, property, etc... tax man still gets its cut. The irs May sleep, but it eats.

FamilyATM

Rollover a Traditional 401k to Traditional IRA tax free.
Rollover a Roth 401k to a Roth IRA tax free.
You can not “Rollover” a Traditional 401k to a Roth IRA. You can only do a “Conversion” which has tax implications. Speak with the institution that you have your IRA with.

m3113n1a1

Another question I've been thinking about regarding RMDs is if part of my 401k is Roth and the other part is traditional, can I use either/or to meet the RMD, or does the tax code specify which one needs to be used first?

tennisguru

Roths do not have RMDs. The point behind an RMD is that the government wants their money. You put in tax-deferred money and the government ultimately wants their cut so they force you to start taking it out. Withdrawals from a Roth never have taxes so no one cares when you take that out.

m3113n1a1

I thought Roth 401ks had RMDs, but Roth IRAs didn't, that's why people roll their Roth 401ks into Roth IRAs after they retire?

So complicated!

windowseat

Roth 401(k)s do have RMDs. Roth IRAs do not*.

*until inherited by a non-spouse.

tennisguru

Yeah, but does anyone actually not roll their Roth 401ks into IRAs?

JamesBond

Good post except for the part I fixed.

The rule is pretty simple vis a vis conversions. Any money you have NOT paid tax on will be taxed when you make the conversion. I called about my 401(a) money which is the post tax contribution, and that can go into a ROTH IRA tax free. The earnings however, get taxed. And it is a proportional amount. For simplicity say you put $1000 into your after tax portion and it has earned $2000. For every dollar you convert from the original $1000, you have to also convert $2 and pay tax on that. At today's rate. Then, that money continues to grow tax free.

So then, do you feel lucky, punk? Will you be paying more in taxes when you graduate from Delta than you are while you are working or will you be paying less. On the surface, I would think for a younger pilot, doing the conversion early and often is the path to take. However, I am not a financial planner, and please don't take my advice without doing your own homework. Personally I think it depends on whether the liberals take over and start taxing the hell out of everybody again, but presently, I don't think the conversion is worth it... for me. ymmv, dyodd.

Denny Crane

JB,

I’ve talked to a few financial people over the last couple years and every one of them has agreed. They think I’m better off contributing to a traditional 401k now and waiting to do any conversions until after I retire.

Denny