IRA Roll-over help!

[JoJo]

So I have a small problem and I need some advice. Plus I know some of you are acute to all the rules and regulations of 401(K)'s and IRA's and such so here goes...

I have a 401(K) and 403(B) that I am looking to roll over into a Roth IRA. I met with a financial advisor today and here was the breakdown of it all:

The 401(K) consists of after tax contributions made by me (true Roth) and before tax contributions made by employer (traditional). If I'm looking to roll over into a Roth IRA, I can do so with the roth contributions. However, if I roll over the before tax contributions, I will have to pay tax on that amount. Here's the catch: If I do pay tax before rolling that amount into the Roth IRA (15% Federal and 5% state) in an attempt to avoid paying taxes at the end of the year, I will get penalized 10% on the amount I am paying tax, because it will be considered "income". So it seems the only option I have is to open both a Traditional AND Roth IRA to avoid penalties.

Is that normal protocol and regulations?? I just don't understand that at all and it's really pissing me off. As far as the the 403(B) is concerned, it's all before tax contributions, so I'm not sure what the process will be with that. Either way it's frustrating, so any insight or advice is appreciated :heythere

[chrisd1163]

You're gonna have to pay taxes on it at some point in time. I 'd rather pay them now so I'm not as pissed off when I retire.

[JoJo]

I know, that's the whole point of me having a Roth IRA....pay taxes now on a smaller amount, than later when it's a bigger amount. I just don't know what to do! :pullhair

[TrippinFace101]

I think if u wait it out they wont tax u they will send u a check. Thats what i did when i rolled over my 401k but i rolled into a another 401k account. I know nothing about iras though.

[JoJo]

Well I'm not working right now so I can't do that lol But I guess I can always do that when I start working. What is the best option though?? Ugh...this totally sucks :grumpy

[royallyunique]

Either wait until you're re-employed and roll it into the new company's 401K or 403B plan, whichever they offer OR the other option is to roll it into an IRA and convert the traditional to a ROTH. Don't take posession of the assets, it's considered and early distribution and like you mentioned above you'll get penalized by the IRS....not worth it. In addition, there is a new rule that any conversion you make from an traditional IRA to a ROTH IRA in the year 2010 you can spread the taxes out over 2 years.

[JoJo]

Ohhh wow!! Good to know :) Thanks so much!

[royallyunique]

Ohhh wow!! Good to know :) Thanks so much!

Anytime!

[darius]

Either wait until you're re-employed and roll it into the new company's 401K or 403B plan, whichever they offer OR the other option is to roll it into an IRA and convert the traditional to a ROTH. Don't take posession of the assets, it's considered and early distribution and like you mentioned above you'll get penalized by the IRS....not worth it. In addition, there is a new rule that any conversion you make from an traditional IRA to a ROTH IRA in the year 2010 you can spread the taxes out over 2 years.

i completely agree with this . . . spot on!