How to Roll Over a 401k to Roth IRA

Estimated reading time: 2 minutes(Last Updated On: August 14, 2020)

Image credit: Philip Taylor PT

When you leave a job where you had a 401k retirement plan, you’ll need to determine what you want to do with your account. You have the option to rollover your account to an IRA or individual retirement account. Many people prefer a Roth IRA to a traditional IRA. 

With a traditional IRA, you don’t pay taxes on your contributions, but you will pay taxes on your distributions in retirement. 

With a Roth IRA, you’ll make your deposits after taxes, but then you won’t need to pay taxes when you make your distributions. Here’s how to roll over your 401k to a Roth IRA.

Decide on an Account

Many financial institutions have Roth IRA options, so you’ll need to decide which one is best for you. Look at providers to see the fees they charge, the types of investments they offer, and the level of customer service they offer to their clients. 

Ideally, you’ll want an account that won’t charge you unnecessary fees, and that offers an investment option you are knowledgeable about. 

Ask for a Direct Rollover

When transferring your 401k to a Roth IRA, make sure to ask your 401k plan to give you a direct rollover. This means they will transfer the funds directly to your new account, instead of writing you a check directly that you would need to deposit. You will need the account information for your new IRA in order to do this. Most of the time, this will trigger a taxable event. 

Most 401k’s or employer sponsored plan contain pre-tax money. The amount you move to a Roth IRA will become taxable income for the year in which you made the conversion. From there on our, your earnings will grow tax free and ideally your distributions in retirement will be too. 

Pick your Investments

Once you have transferred the funds to your new account, it’s time to pick your investments. Different Custodians offer different opportunities, for example you may move funds to a Brokerage firm that offers mutual funds, however if you locate a “Self-Directed” custodian, you could use retirement funds for alternative assets such as Real Estate. 

If you’re unsure of which investments to choose, talk to an advisor to see what they’d recommend.

If you’re planning on rolling over your 401k to a Roth IRA, consider using Quest Trust Company to set up your new account. Quest offers truly self-directed IRAs with flexible investment options, as well as short processing times of less than 48 hours and minimal fees. Contact a Quest IRA specialist today to rollover your 401k to a Roth IRA.

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