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<<I have been trying to digest an IRS publication on IRAs and I'm not sure if I'm understanding it correctly. Can someone help?

I'd like to roll a 401K account into a Roth IRA. From what I understand, I first have to roll it into a traditional IRA, then I can roll it into a Roth. However, there seems to be a rule about only being able to rollover an IRA once in a twelve month period. Does this apply in this case? Does the roll from the 401K into the IRA count as one, and then roll into the Roth count as a second? If it does, I'm out of luck on being able to spread the taxable income out over 4 years. Bummer.>>

A "rollover" is when you get a check made out in your name from an IRA or retirement plan. You have 60 days from receipt of that check to get the money in an IRA. You may "rollover" the same IRA money only once every 12 months.

A "direct transfer" is a transaction that moves your money directly from one retirement plan/IRA custodian to another. You never have the opportunity to cash a check and lay hands on that money. It goes from one custodian to the other. A direct transfer has no time limit. You can do it daily if you can arrange it.

In your case, if YOU personally get the 401k check made out in your name, and you then sign it over to an IRA custodian, that's a rollover. If the check goes directly to the IRA from the plan, that's a direct transfer. For a number of reasons, not the least of which is a major tax hassle, you want the 401k money moved to the IRA via a direct transfer. Your broker and plan custodian can guide you through the process. After the money is in the traditional IRA, simply arrange for another direct transfer of the funds to a Roth IRA. There's no time limit restriction, and everything will work out fine.


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