401k Rollover to Roth IRA

There are many benefits to making a 401k rollover to Roth IRA – chief among them the tremendous tax benefits offered by a Roth IRA. However, there are a few things to keep in mind as you decide whether this kind of rollover is right for you specific circumstances.

Firstly, your previous year’s income must not be above $116,000 for someone filing as single and $169,000 for those filing jointly or as married. If your income is above these amounts you don’t qualify for a 401k rollover to Roth IRA but you may qualify for a traditional IRA rollover.

Next you need to decide between an indirect or direct rollover. With a direct rollover your funds are transferred directly from your 401k to your Roth IRA (minus any taxes due on the balance and potential penalty amounts) while an indirect rollover requires you to reinvest the funds yourself within 60 days of the distribution.

Finally, you should consult with a tax professional before you execute the 401k rollover to Roth IRA. Although both of these are retirement savings accounts, their tax treatments are different and you should ensure that you fully understand all of the tax consequences before you proceed.