Converting 401(k) to Roth IRA could cut taxes and RMDs, but requires upfront tax payment.

From Yahoo Finance: 2025-04-19 08:30:00

Converting a 401(k) to a Roth IRA offers tax-free growth and withdrawals in retirement, avoiding RMD rules. However, it requires paying a significant tax bill upfront. Gradual conversions can help manage taxes, but the shifting portfolio and income dynamics may make a Roth conversion inappropriate in some cases. Consult a financial advisor before converting.

Retirement funds in a 401(k) are taxed upon withdrawal, creating a potential tax burden for retirees. Roth conversions, rolling over funds to Roth IRAs, offer tax-free investment earnings and withdrawals, avoiding RMD rules. However, the upfront tax bill for a conversion can be steep, especially for large balances.

Gradual conversions can manage tax consequences, focusing on dollar amounts and tax brackets. Roth conversions may not be ideal for retirees in lower tax brackets post-retirement or those planning charitable donations. Consult a financial advisor to determine the best strategy based on individual circumstances and goals.

Before converting funds, consult a financial advisor to analyze different scenarios. Roth conversions may not be beneficial for those near retirement or planning charitable donations. Consider the impact of a five-year withdrawal limitation on converted funds. Tailor conversion strategies to individual circumstances for the most efficient outcome.



Read more at Yahoo Finance: Should I Convert 15% of My 401(k) Each Year to a Roth to Cut Taxes and RMDs?