5 Simple Steps to Convert Your Old 401(k) to a Roth IRA

Financial advisers often recommend that investors with old 401(k) plans from previous employers convert those accounts into self-directed IRAs. More often than not, though, the account in question gets rolled over into a Traditional IRA. While there is nothing inherently wrong with a Traditional IRA, some investors may be better off rolling into a Roth IRA.


A Roth IRA is very similar to a Traditional IRA except that contributions to a Roth IRA are taxed,whereas withdrawals from a Traditional IRA are taxed. The Pension Protection Act of 2006 made it legal to add non-Roth money to a Roth IRA. Before that law was passed, investors were forced to transfer funds into a Traditional IRA and then convert that account into a Roth IRA. The process is now much more straightforward, so if you expect to fall into a higher tax bracket during retirement, either because of income levels or higher government taxation, then a Roth IRA conversion might be for you.

How can you convert your old 401(k) to a Roth IRA? We’ve broken the process down into 5 simple, easy-to-understand steps that any investor can follow. By the way, these same steps also apply for converting your old 403(b) or 457 plan into a Roth IRA.

Ensure Your Eligibility

There are some limits to 401(k) to Roth IRA conversions. Your modified gross income cannot exceed $100,000, regardless of whether you file a single or joint return. Any money that you put into the Roth that would otherwise be taxable must be included as income during the year in which you convert. If you have after-tax funds in your old 401(k), the conversion of those assets to a Roth IRA will not subject to the prorata rule, which has to do with personal income taxes. The best way to determine your 401(k) to Roth IRA eligibility is to speak with a qualified tax professional or CPA. Janguard does not offer tax advice.

If you are eligible, then you need to make sure than a Roth IRA conversion is a good idea for you. Unless you are already close to retirement, you won’t want to take any distributions from your Roth IRA for some time because such withdrawals equate to a 10% IRS penalty if you do so within five years of the conversion or if you’re younger than age 59 ½.

401k Roth IRA

Choose a Roth IRA Custodian & Open an Account

There are dozens, if not hundreds, of retirement account custodians out there. A few of the factors you may want to consider when shopping for your Roth IRA provider include:

● Annual Account Fees

● Account Termination Fee

● Transaction Fees

● Investments Offered

● Customer Service Reputation

● Location

If you would like help selecting a Roth IRA custodian, feel free to call a non-commissioned Janguard IRA transfer adviser at 800.571.6341 for impartial advice that could save you time and money.

Transfer Funds from 401(k) to Roth IRA Account

Moving the money from your old 401(k)’s administrator into your new (or existing) Roth IRA is supposed to be simple, but sometimes the company giving up the money drags their feet. To prevent this, let them know ahead of time to prepare for a complete transfer and that you are closing your account. Instruct them to sell your investments and put them into a cash account, and ask if they have any special forms for you to fill out. Also, make sure you complete your old plan administrator’s information exactly as it appears on your current account statement.Otherwise, your Roth IRA transfer could be delayed by weeks or even months.

It should be noted that there are two ways to move your funds from one account to another. If you execute a 60-day rollover you will be subject to a 20% withholding, but direct rollovers are not subject to that rule.

Choose Your Investments

Roth IRA plans offer much more flexibility in the way of investment options than do 401(k) accounts. You can invest in traditional markets, such as:

● Stocks

● Corporate Bonds

● Treasuries

● CDs and money markets

You can also invest in alternative assets, including:

● Real Estate

● LLCs

● Rare Coins

● Gold and Silver Bullion

It may be helpful to speak with a qualified Roth IRA adviser about your financial and life goals, as each of the aforementioned investments has its own pros and cons. What works for someone else may not work for you, so choose your investments carefully; they are your future.

Track Your Roth IRA’s ProgressIRA progress

In many cases, it is not wise to constantly tweak your investments because of transaction fees. However, most custodians send clients quarterly account statements. These statements show you which investments are performing well, which investments are flat, and which investments you might want to consider shedding.

You also might want to alter your investments when your goals change. In any case, it might be a good idea to speak with a financial adviser when considering making changes to your Roth IRA, as some transactions involve extra paperwork at tax time.


The Pension Protection Act changed the way many retirement accounts operate. As we all know, the Internal Revenue Service (IRS) is constantly changing the rules, so any time you are making adjustments to your retirement accounts it is a good idea to check with a tax professional and ensure that you are in compliance. If rolling over your inactive 401(k) into a Roth IRA sounds like it could be profitable for you, call Janguard today at 800.571.6341 and discover how easy it is to secure your independence with a self-directed Janguard Roth IRA transfer.


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