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bigcaat: "I have a friend who has about 3k in a 401k from a previous employer.

I'm not real familiar with 401k's. My thought was for her to roll it over into a Roth, while it's still at a low balance, since she's not getting matching contributions for it anymore."


Your friend cannot roll directly to a Roth IRA. It would first need to be rolled (or more likely trustee to trustee transfer) to a a regular IRA (at least for a metaphysical moment). Thereafter, your friend could convert to a Roth IRA, assuming eligibility, and the conversion would be a taxable event.

"My thinking is that since she is Roth eligible, and she will be struggling to contribute the annual maximum anyway, why stay in a 401k when she can be making contributions to the Roth?"

Actually, with less than 5k in 401-k, the employer can (and probably will) force your friend out of the plan. The plan administrators generally dislike managing small accounts for former employees.

"Also, she's under the impression that she can roll it over into some other 401k, even though her current employer doesn't offer one. That doesn't sound possible to me. Is it?"

Theoretically, yes, but as you point out, she needs to be working for am employer that offers a 401-k plan. One other possibility, if she rolls it to a traditional IRA, leaves it there, and does not contaminate/pollute it with other funds (other than from another 401-k), your friend could later roll the uncontaminated traditional IRA to an 401k that your friend would be eligible for.

I am no expert, but I hope this helps. Regards, JAFO

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