How to Roll Over a Roth 401(k)

Because of the different tax treatment, roll the Roth 401(k) money into a Roth IRA.

Kimberly Lankford
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published
in How-to

I have access to a traditional and a Roth 401(k). How much can I contribute to each, and will there be tax issues if I roll the money into an IRA? --Todd Donohue, Potomac Falls, Va.

Why You Need a Roth IRA

You can split the traditional and Roth contributions to the 401(k) any way you choose, as long as you don’t exceed the $17,500 annual limit ($23,000 if you’re 50 or older). Traditional 401(k) contributions are pretax, and the withdrawals are taxable. You pay taxes on Roth 401(k) contributions, but withdrawals are tax-free in retirement. Because of the different tax treatment, you should roll the traditional 401(k) money into a traditional IRA and the Roth money into a Roth IRA. “That will make record keeping a whole lot easier,” says Stuart Ritter, a certified financial planner with T. Rowe Price.

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Kimberly Lankford
Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.