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Can I convert my 401k account into a Roth IRA in part, by opting to pay taxes when I am still with the company I work for?

I am not sure if I can convert my 401k into a Roth IRA while I am still with the company. Is it allowed on a company-to-company basis, or is it a federal rule that I can convert my 401k in part to a Roth IRA only when I quit the company I am currently working for? Please advise.

Sep 23, 2012 by Naren in  |  Flag
6 Answers  |  8 Followers
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7 votes

Good morning Naren, couple of things to add, to all the great advice you have received so far. If your plan allows you to do an "in service withdrawal" in most companies you can actually do that directly to a Roth IRA. However it might be a good idea to speak with a CPA to see if you can spread the conversion over the next, let's say, 2-3 years as an example, to try to minimize the hit you could potentially take on Taxes. In addition to that, you might have after tax dollars in your 401k plan, and if NUA is something that is applicable to you, having after tax moneys in the account can help you offset some of the tax consequences that come from utilizing that transaction. I hope this helps, best of luck. Sincerely Michael

1 Comment   |  Flag   |  Sep 25, 2013 from Farmington, CT

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Flag |  Nov 16, 2013 near Prince Street, NY

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Don Unger, MSFS Level 18

Here is another thought. If your company allows "in service distributions" you can roll part of your 401K to an IRA and then convert that to a Roth IRA. You will owe taxes and it is best to pay the taxes I think out of your own pocket that to pay the taxes out of the converted IRA.

So contact the HR department and find out about the availability of "in service distibutions".

Comment   |  Flag   |  Oct 01, 2012 from Henrico, VA

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Your current employer can establish a ROTH 401(k) in tandem with your Traditional 401(k). At that time you may transfer from the traditional to the Roth 401(k), or you can run both plans at once. Adding new contributions to the Roth plan. Best of luck, Angela Thomson

Comment   |  Flag   |  Sep 24, 2012 from Narragansett, RI

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Naren, you must take an in-service distribution and your plan must allow you to do it. For 401k contributions, you must be age 59 1/2 or older to take a distribution. Once you take the distribution, roll it to a traditional IRA. From there, you can convert the traditional IRA to a Roth IRA. You will owe the taxes in the year you do the conversion.

If you are part of a small company, you may suggest to the trustee to add Roth contributions as a new source of funds. Once the provision is added to your plan, you can move money from your 401k source to the Roth source regardless of your age. You will be responsible for the tax in the year the transaction is made.

Comment   |  Flag   |  Jan 30, 2013 from Montgomeryville, PA

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Naren I do not think you will be allowed to convert your currentl 401K to a Roth IRA. Even if the plan has the Roth deferral feature it would be for future contributions only.The existing plan would have to allow "In service distribtuions", but normally this is after attaining age 50. You can check with the plan administrator or HR person to see if "In Service Distributions" are allowed and when. It is a Company plan rule not a Federal Rule. Godo Luck. Mark Schreiber

Comment   |  Flag   |  Sep 24, 2012 from St Louis, MO

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Jason Hull Level 20

If you have appreciated company stock in your 401k, then you may want to consider the effects of net unrealized appreciation (NUA). Take a look at this IRS publication for more information: http://www.irs.gov/publications/p575/ar02.html

Comment   |  Flag   |  Jan 30, 2013 from Fort Worth, TX

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