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I have a former employer offering a Lump-sum non-taxed amount of about $7200.00 coming from a previous employer. Is there anyway to rollover this money into a Roth IRA?

I am 45yo

Jul 20, 2012 by Matthew from Norwalk, CA in  |  Flag
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3 votes

Since 2008, individuals have had the ability to roll their 401(k) plans directly into Roth IRAs, and since 2010 the income limits disappeared. There are still some state government plans that may make this direct transfer difficult, so you may want to call your plan administrator (the phone number is on your statement or you can receive it from human resources) to ask the question about a direct rollover. Open your Roth IRA prior to submitting the paperwork so that you can make a direct transfer. As Steve said, make sure you have the funds available outside of your retirement plan to pay the taxes you will owe.

Comment   |  Flag   |  Jul 20, 2012 from Fort Worth, TX

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Helen and Steve are correct. There is no problem rolling over the account. But logistically, you may find it easier to roll over the employer plan account to a traditional rollover IRA (not ROTH). Then, establish a ROTH at the same firm and convert some or all of the balance after you have checked the tax consequences (because the conversion amount is taxable as ordinary income). Taking this additional step will also give you flexibility to recharacterize the conversion before your filing deadline, if it turns out to have been a bad decision because the account value declines substantially. Good luck to you.

Comment   |  Flag   |  Jul 20, 2012 from San Francisco, CA

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Consider opening and transferring the amount into a Roth IRA. If your new employer offers a Roth 401k, you could consider rolling it there. Though allowed, not many employer-sponsored plans offer the Roth 401k option. If possible, use funds from outside of the amount be transferred to pay the taxes due on the conversion.

According to my tax resources, the transfer/rollover of funds from a non-taxed (pre-taxed) amount in a traditional qualified plan may be moved into a Roth but amount needs to be included as income.

Comment   |  Flag   |  Jul 20, 2012 from Amesbury, MA

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