401(k) Rollovers Part 1: How Do I Rollover My Traditional 401(k) Into a Traditional IRA?

[@yaakawuok]

If I rollover my traditional 401k to a Roth IRA, does all the money I transferred over begin to be treated as post-tax contributions so that I don't ever pay taxes at all on them when it comes time to withdraw from my Roth IRA? What's the penalty, if there is one, of transferring pre-tax (untaxed) contributions from my 401k to a Roth IRA account (which is made up of pre-tax contributions so that you can withdraw tax-free during distribution)?
If I can rollover my 401k to my Roth IRA and be allowed to withdraw all that money without any tax, then the portion of the 401k I rolled over would never have had the chance of being taxed. Is there a catch to this loophole of not paying taxes on your 401k contributions when you roll it over to a Roth IRA?

[@AllGenFinancial]

Hi Yaak,
Thank you for your comment! 401ks may be transferred as a “non-taxable event” only if they move from like-to-like registrations. In other words, if you rollover your traditional 401k to a rollover IRA, there is no taxable event; same for Roth 401k to Roth IRA.
Moving funds from a traditional 401k to a Roth IRA would be considered a "Roth Conversion," which means the amount of the rollover is immediately taxable at your ordinary income tax rate. This changes the tax status from tax-deferred to tax-free. Any transfer from a Traditional 401k to a Roth IRA will be taxable at your ordinary income tax rate.
Please reach out to us if you would like more specific help on understanding Roth conversions and strategies around that. We're here to serve! www.allgenfinancial.com/contact-us/ or 407-210-3888

[@nivekyentrouc1200]

How about this question, Why would I roll over my 401K to an IRA?

[@AllGenFinancial]

Thanks for your question! We have a number of resources on this topic. We've made a list of these resources below to help answer your question, but keep in mind that 401(k) rollovers can be complicated and specific to your unique situation.
Please reach out if you have any questions! We're here to serve. 407-210-3888
This video covers what your options might be with a 401k from previous employer: th-cam.com/video/U6iPLsUWWcE/w-d-xo.html
We also offer a list of 401(k) Rollover FAQs here: www.allgenfinancial.com/401k-rollover/
Specifically, this section pertains to your question:
Why Should I Rollover My 401(k)?
Rolling over your 401(k) is typically the best choice. You avoid the financial penalties of cashing out the 401(k) early and you can possibly still make contributions to it. If you cash out your 401(k) before you turn 55 (if you’re not working) or 59½ (if you are working), there’s a 10% penalty on anything you take out of the account. If you cash out your 401(k) while you’re still working, you’ll be taxed on anything you take out at your current tax rate.
Rolling over the account to either an IRA or a different 401(k) allows you to possibly grow the account via contributions and to avoid financial penalties.
401(k) vs. IRA
An IRA is typically more flexible when it comes to what types of investments the account can hold. There are also often fewer fees associated with an IRA than with a 401(k). However, if you work for a company that offers competitive investment options for a 401(k) and also offers contribution matching, a 401(k) may end up being the better choice.
When deciding between a 401(k) and an IRA, the choice is really between whether you want your retirement plan to be through your employer or self-directed. If you choose to roll over into an IRA, you’re not entirely on your own, however. While you can choose to manage your IRA yourself, you can also work with a Financial Advisory firm to manage the IRA. This has the added benefit of having a professional manage your retirement accounts.