Converting 401k funds to Roth IRA

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Topic Author
Copernicus9
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Joined: Thu Oct 14, 2021 3:56 pm

Converting 401k funds to Roth IRA

Post by Copernicus9 »

I would like to convert some of my pretax solo 401k funds to a Roth IRA this year. I understand a trigger event (such as age or retirement) is required to avoid a 10% penalty on a 401k withdrawal.

Although I don't meet the usual trigger events, I have funds in the 401k that were rolled over from a previous employer (which I could have rolled into an IRA). I have heard that I can distribute (and convert to Roth IRA) 100% of funds that were rolled over from the previous employer without the 10% penalty. Is that correct?

Related question: my solo 401k has both pretax and Roth accounts. Can I convert the funds to the Roth 401k instead of a Roth IRA? If so, does one make more sense than the other?

Thank you.
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Re: Converting 401k funds to Roth IRA

Post by placeholder »

The answer to many solo plan questions is that it depends on how the plan was set up so you need to contact the custodian to see if in plan roth rollovers are allowed.
Topic Author
Copernicus9
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Joined: Thu Oct 14, 2021 3:56 pm

Re: Converting 401k funds to Roth IRA

Post by Copernicus9 »

Thank you. I have reached out to figure out if in-plan rollovers are allowed.

I'm not sure how to confirm if previously rolled-in 401k funds (from a previous employer) can be distributed/rolled out without the 10% penalty.
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Re: Converting 401k funds to Roth IRA

Post by placeholder »

Copernicus9 wrote: Tue Oct 26, 2021 3:01 pm Thank you. I have reached out to figure out if in-plan rollovers are allowed.

I'm not sure how to confirm if previously rolled-in 401k funds (from a previous employer) can be distributed/rolled out without the 10% penalty.
Depends on what you do with the rollover.
Last edited by placeholder on Tue Oct 26, 2021 3:48 pm, edited 2 times in total.
Topic Author
Copernicus9
Posts: 8
Joined: Thu Oct 14, 2021 3:56 pm

Re: Converting 401k funds to Roth IRA

Post by Copernicus9 »

The rollover goes into a Roth IRA.

The question is about the "trigger" needed to avoid an early 10% distribution penalty from a 401k, which applies regardless of where money goes. My understanding is that the 10% penalty does not apply to funds that came from a previous employer's 401k, and this is what I am trying to verify.
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Re: Converting 401k funds to Roth IRA

Post by placeholder »

It's an allowed distribution with no trigger required that can be rolled over but the penalty situation is the same as any other allowed distribution.
Topic Author
Copernicus9
Posts: 8
Joined: Thu Oct 14, 2021 3:56 pm

Re: Converting 401k funds to Roth IRA

Post by Copernicus9 »

Thank you :happy
Alan S.
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Re: Converting 401k funds to Roth IRA

Post by Alan S. »

Copernicus9 wrote: Tue Oct 26, 2021 3:47 pm The rollover goes into a Roth IRA.

The question is about the "trigger" needed to avoid an early 10% distribution penalty from a 401k, which applies regardless of where money goes. My understanding is that the 10% penalty does not apply to funds that came from a previous employer's 401k, and this is what I am trying to verify.
A qualified rollover contribution (401k to Roth IRA) is never subject to penalty, just as a regular Roth conversion is never subject to the penalty. Neither is an IRR (in plan Roth rollover) ever subject to penalty.

So it's immaterial which portion of your 401k funds the Roth rollover. Now eligibility to execute these rollovers is another question altogether, totally separate as to whether the penalty applies.
Topic Author
Copernicus9
Posts: 8
Joined: Thu Oct 14, 2021 3:56 pm

Re: Converting 401k funds to Roth IRA

Post by Copernicus9 »

Thank you, Alan.

From what I can tell, it doesn't make much difference if I roll to a Roth IRA or the Roth 401k account. My inclination is to go with the 401k.
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