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Once I leave my employer, is it possible to rollover my 401(k) to a Traditional IRA then convert that Traditional IRA to a Roth IRA?

If so how do I pay the taxes? Do I come up with the money out-of-pocket or can I take the taxes out of the Traditional IRA moneies?

At what tax rate would the money be taxed?

Thanks in advance for your help.

Casey
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Once I leave my employer, is it possible to rollover my 401(k) to a Traditional IRA then convert
that Traditional IRA to a Roth IRA?


yes.

If so how do I pay the taxes?

probably a special form, but in the end you just add
the amount in the 401(k)/trad.IRA to your gross income. (if amount is $40,000, IRS sez, "O Boy! Casey made
40k extras this year!!)

Do I come up with the money out-of-pocket or can I take the taxes out of the Traditional IRA moneies?

you May take the money from the IRA , but if you
'crunch the numbers' you're likely to find that that will eat up most of the advantage of the conversion.

At what tax rate would the money be taxed?

your marginal rate.... it's Extra Income.


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Greetings, Casey, and welcome. You asked:

<<Once I leave my employer, is it possible to rollover my 401(k) to a Traditional IRA then convert that Traditional IRA to a Roth IRA?>>

Yes, it is. In fact, that's the only way you may get employer retirement plan money into a Roth IRA.

<<If so how do I pay the taxes? Do I come up with the money out-of-pocket or can I take the taxes out of the Traditional IRA moneies?>>

It's best to pay the taxes due on the conversion from assets outside the converted IRA. Otherwise, you lose the compounding effect of the money used to pay those taxes plus you must pay a 10% penalty for taking that money if you're younger than age 59 ½.

<<At what tax rate would the money be taxed?>>

In general and as noted by JPT aka x4a54, the conversion income will be taxed at your marginal tax rate for the year.

Converting to a Roth IRA may or may not be a good idea. You should analyze this issue closely based on your personal situation. Much depends on your tax rate today versus that in the future; how you will pay the taxes due; how long the money can stay in the Roth IRA before being withdrawn; and the size of your potential estate. See my analysis on this board at http://boards.fool.com/Registered/Message.asp?id=1040013000441002&sort=postdate for a discussion of some of these concerns. It may give you an idea of what you should be looking at before you make this decision.

Regards….Pixy

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