Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

My wife is leaving her job in the next month and going to a new one. She currently has a 401k that we would like to rollover into a Roth IRA ASAP.

However we might be moving in a few months and would like to wait until then to look for a local financial advisor and to start the Roth IRA then.

Is there any time limit to rollover or can we just wait until then to roll it over?

share|improve this question

2 Answers 2

up vote 2 down vote accepted

You can make the rollover at a later time without a problem. If you are rolling from a 401k to a Roth IRA, the timing will affect your taxes. If you are rolling from a 401k to a Traditional IRA, also called a Rollover IRA in this case, you can do it at any time.

The only exception would be if you have less than $5000 vested in the 401k they can force you to take a distribution from the plan. From experience, not all plans enforce this provision, but they are not forced to keep your 401k open unless you have at least $5000.

Update: I found out some additional information recently that I wasn't aware of. Apparently you once the money is in a Rollover IRA, it can be converted into a Roth IRA at any later point without incurring a distribution penalty (of course, you still have to pay that taxes at the point of conversion). There is no time limit for the conversion either.

share|improve this answer
    
Just to complete the options: 401K to 401K rollover can also take place at any time, provided the new company accepts rollovers from other companies. –  mhoran_psprep Jan 16 '12 at 18:41
    
@mhoran_psprep the question is about IRA, so your comment is rather irrelevant. –  littleadv Jan 16 '12 at 19:01

I would do a direct transfer to an IRA first. Then look carefully at where you will end the year, i.e. your 'taxable income' line. The worst thing on can do is to not quite understand the difference between gross income and taxable.

enter image description here

If you are at, say, $65,000 taxable (which can mean 80-100K gross, depending) you would want to convert only as much as $5700 to the Roth. Anything more will be taxed at 25% instead of 15. Converting a bit each year to 'top off' the 15% bracket is a slick way to do this. Having a full conversion all get taxed at a higher bracket than you are in, not a great idea.

The chart above is from Fairmark, I am not affiliated with them, but recommend.

share|improve this answer
    
Thank you for the useful information. –  mattgately Jan 17 '12 at 19:29
    
My pleasure. I hope this helps save you some money long term. Welcome to SE. –  JoeTaxpayer Jan 17 '12 at 22:03

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.