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I'm planning to leave my current employer in four years and attend grad school for several years, and I'm unsure what I should do with the funds in my Roth 401K. Based on my current salary and my employer's contributions, I'll have about $33K in this account when I start school (ignoring gains or losses).

Will I be able to roll my Roth 401K into my existing Roth IRA without complications, e.g. rollover limits, when I become a student? I won't necessarily have any earned income when I'm in school; I think it depends on whether I'm issued a W2 or a 1099MISC for the fellowship income that I'll (hopefully) receive.

My 401K is currently invested in several funds with expense ratios ranging from 0.03 to 0.14, so there are worse options than leaving the money there for several years until I start working again. However, I would prefer to roll it into my Roth IRA and manage it from there. If necessary I'll post the details of my 401K contributions.

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For this rollover, there are no restrictions of age/income/etc.

You need to know - the transfer must be direct, i.e. if you get a physical check, it should be payable not to you, but to the new custodian (broker) for your benefit. Direct is preferable and faster.

The assets may not be transferable 'in kind.' This phrase simply means that you may move the value, but if the assets are not shares that are held by the public, but special 401(k) class shares, they must be liquidated before moving, and moved as cash. This is a risk people with large accounts take should the market move dramatically during the time they are liquidated, and why, for them, I suggest doing it piecemeal.

  • A direct transfer is similar or identical to a trustee-to-trustee transfer, right? Great point about in kind transfers. That's something I'll need to consider when the time comes. – John Bensin Apr 10 '13 at 14:13
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    Yes, exactly, trustee to trustee – JoeTaxpayer Apr 10 '13 at 16:19
  • Is the risk the market moving an upside risk? Since my time horizon will still be fairly long when I make the rollover, I would prefer if the market dropped during the process so I could purchase more of the funds in my IRA. – John Bensin May 1 '13 at 13:37
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    If the move means liquidating and then buying in the IRA, your risk is missing an upside move. Yes, I recommend the move occur while te market is dropping. – JoeTaxpayer May 1 '13 at 13:55
  • That's what I thought. In ideal circumstances (from my perspective, that is), the market spikes when I liquidate my 401K and drops drastically when I buy into my IRA funds. – John Bensin May 1 '13 at 13:59

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