Should I Roll My Traditional 401(k) to a Roth?

Should I Roll My Traditional 401(k) to a Roth?

Listen to how ordinary people built extraordinary wealth—and how you can too. You’ll learn how millionaires live on less than they make, avoid debt, invest, are disciplined and responsible! Featuring hosts from the Ramsey Network: Dave Ramsey, Ken Coleman, George Kamel, Rachel Cruze, and John Delony.

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[AnnaOllsson]

Investing in Roth IRA can be a good choice since they are funded with after tax dollars, your contributions can grow tax-free over time. When you withdraw money from your Roth IRA in retirement, you won’t have to pay tax on it, which will help you keep more of your hard-earned money. I retired with 5 million dollars

[Franky-je]

I just turned 44 and awfully late to investing with barely any portfolio except my 401k, I have a decent amount of cash saved up and with inflation currently soaring AGAIN, I'm getting worried about retirement, my intention is to retire at
55. How best do I maximize my savings of over $220k

[PH-mdxp]

Roth conversions should be carefully considered and planned for. Dave really shouldn’t be giving tax advice without issuing a disclaimer that he isn’t a licensed tax accountant. This off the cuff advice can be dangerous if taken without consulting with a professional or at least having a solid understanding of the tax laws.

[FURDOG]

2:50 Very important detail in paying the taxes on the converted portion of the traditional IRA conversion. Pay the taxes from other sources other than the roll over itself, so you will get the full amount working for you. If possible, pay the roll over taxes from funds that are not already in the market!!!

[BlakeBake]

Dang. Baby step 7 at 32 at 2M+ net worth? Killing it.

[tdavies]

Unreal..1 million in 401 k and they are only 32. And have a home paid for and no debt? ??

[n.g.]

Not taxable if you roll it into a Rollover IRA. Then, pay low taxes by rolling over from Rollover IRA into Roth IRA by moving increments of $100k each year for a few years, and still leave some in the Rollover IRA to avoid paying more taxes now and when retired, pull only small amounts in order to stay within the lowest tax-bracket possible.

[ItsEricAZ]

A $700, 000 conversion would get taxed mostly at a 37% rate! They probably show spread the conversion out over several years. Their CPA needs to game it to see what the best numbers are per year and where to get the money to pay this huge tax bill. For example, if they are making $300, 000 combined, a $140, 000 conversion would keep them at the 32% tax rate. The next $200, 000 gets taxed at 35%. I'm thinking they would prefer to save and convert over several years.

[MathewOliver]

Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing below the $100k mark and in the first 2 months, my portfolio was reading $234, 800. Crazy right!, I decided to reinvest a huge percentage of my profit and it got more interesting.! For over a year we have been working together making consistent profit just bought my second home at the beginning of summer.

[Gibb]

Concept: right now she is probably in a 24% federal tax bracket so that's what she will owe federally if she rolls. Let's say in retirement they use 100k of Roth in a year, now their federal tax bracket is 10% because technically they had zero taxable income. Why not leave some in traditional so you can pay taxes later since 10% federal taxes < 24%. You just cut your retirement by a net 14% by rolling everything

[frankrusso]

Seems odd that Dave is telling the caller to roll into a Roth without asking her which marginal tax bracket she is currently in…or believes she will be in the future. The goal should be to minimize taxation. If she rolled the $700, 000 into a Roth this year it would be at the highest tax bracket. The caller should stagger the rollover over a few years to stay in the lowest tax bracket possible. Another question should be: What are the State tax ramifications? If she lives in CA or NY but is moving to a “no State income tax” area like Florida or Nevada, then she should wait until the move.

[devoutsalsa]

You can always just stop contributing to the traditional 401k & start investing into the Roth 401k.

[joebolke]

If you have the cash available to pay the taxes you can do an in-plan conversion. My plan is to do incremental in plan conversions each year to maximize my tax bracket thus locking in my current lower tax bracket while I can. I anticipate the tax rates to jump 3% in 3 years when the trump tax cuts expire.

[theeggbandit]

I’m 35 and have 20 dollars in a savings account

[joebolke]

The calculation is simple. Do you want to pay taxes at your current tax bracket or defer the taxes to the future. You might be in a lower tax bracket when you retire but the federal government might raise the incomes tax rate.

[Jim_Curtis]

Dave is probably wrong on this one because ERISA rules are strict. Rolling it into a roth 401k is a taxable conversion, so she needs to roll it over to a rollover IRA, then convert it to a roth IRA herself. A 401k plan is not going to be responsible for doing this and will likely not take the risk of doing this.

Dave, please STOP giving people tax advice unless you get licensed as a tax professional first or just tell people to see their accountants. The IRS is enforcement minded lately and they are not playing around.

[kyliefan]

I would only do small amounts each year to make sure I could afford the taxes. I did it myself but didn’t have a huge IRA when I rolled into a Roth.

[jasoncooper]

Excellent explanation towards the end of video. Basically transfer full amount and then pay the taxes in cash.

[jorgesalazar]

I don't understand. Why would the caller want to roll over to a ROTH? She's better off letting that money accrue untaxed due to her being a high earner.

[PatCole]

I wouldn't roll it all at the same time. Move a little each year to keep the taxes down.