Conversion Of A Traditional 401(K) To A Roth Ira
The recent Harry Gross pension law article discusses the benefits and procedures to convert a 401(k) plan to a Roth IRA:
DEAR HARRY: Before 2015 is over, I will hit the magic number of 70 1/2. This means that I have to start drawing money from my IRA before April 15, 2016. I would like to take my traditional 401(k) and move it to an IRA as outlined by a note I received from the manager of the 401(k). Then I will take my required distribution from my IRAs and put it into a Roth IRA. I will pay the taxes on the money I draw from other money that I have. I have several questions: I have about $50,000 in capital losses carried forward. Can I use some of these to offset the taxable IRA distributions? Can I convert the entire 401(k) to a Roth and pay the taxes from other money? Are there any limits on the amount of money I can convert to the Roth?
WHAT HARRY SAYS: You may not use the capital losses directly to offset the income. You are limited to offsetting them against capital gains plus $3,000 against other income. You may take a roll-over to a Roth IRA. But you’ll get hit with a tax on the full distribution. After that, there will be no tax on any distribution, no required minimum distributions. There are no limits on the amount you may roll over to a Roth from an existing plan. Keep in mind that your Roth contributions are limited to your earned income in any particular year.
Reference: Harry Gross, Philadelphia Daily News, page 14, (April 13, 2015)
Filed Under: 401(k) Plan; Rollover & Roth IRA.
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