In the past, it took two steps to transfer funds from a 401(k) plan to a Roth IRA, thereby effecting a Roth conversion contribution.
The plan participant had to use a traditional IRA as a go-between. And certain high-income taxpayers couldn’t complete the deal in any event. But the rules have changed for the better.
Strategy: Use a one-step rollover. When it’s appropriate, roll over funds directly from a 401(k) or other qualified plan account into a Roth. You don’t have to do the two-step dance anymore.
Best of all, there’s no longer any restriction based on your income, beginning in 2010. This change is expected to spur even more direct rollovers this year.
Accordingly, the IRS has issued guidance on 401(k)-to-Roth rollovers (IRS Notice 2009-75), which clarifies previous explanations provided in IRS Notice 2008-30 (see box below).
Here’s the whole story: A participant’s 401(k) account, which may consist of both pretax empl...(register to read more)