Ask Terry Questions 401k conversion to Roth 401k before rollover to IRA and pro-rata rule

401k conversion to Roth 401k before rollover to IRA and pro-rata rule

By Terry Savage on July 12, 2020 | Financial Planning / Retirement

I’m 60, just retired, and currently have 401k, Roth 401k, IRA and Roth IRA. Only about 10% of total retirement assets are “Roth”. I’m planning to convert traditional 401k and/or IRA to Roth 401k and/or Roth IRA. Is there a benefit to doing a larger portion of the conversion while still under the 401k umbrella, and then later doing rollover to IRAs? I’m only just now finding out about the IRS “pro-rata” rules and trying to understand how that would affect my decision. I will also discuss in more detail with my CPA. Thanks for all of your support through podcasts, facebook, books, WGN and online!!!

Terry Says

OK, this is a compolicated and sophisticated question — and not all CPAs can give you the best advice.
You need one of Ed Slott’s trained “elite” IRA advisors for these decisions, working with your CPA. Fine one here:

Slott is the acknowledged expert on everything IRA! He trains a group of national experts specifically to give you the correct advice.
However, I want to add one thought. Yes, it makes great sense to do some converting this year — before tax rates rise. You know, you must pay ordinary income taxes on all amounts converted. So make sure that you have money OUTSIDE your retirement plans to write that check!

AND, do ask your company HR department if you are allowed to do a 40l(k) conversion to a Roth AFTER you retire. I’m betting the answer is no — and they will require you to do an IRA rollover first And THAT could put you in a spot — because you can’t do TWO rollovers in one year (although that rule was waived for people who took RMDs in 2020)! See what I mean about complicated??!! So before doing ANYTHING (except asking about a post-retirement conversion at your company) be sure to consult an expert! that expert will also help you with the “pro-rata” issue. So you might be wise to convert one account, and not another!

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