When To Convert Your 401(k) Into a Roth IRA


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  • The decision to open a retirement account and/or they type(s) can be a difficult one. There are numerous options and each option may present benefits and restrictions. 401(k)s, Traditional IRAs and Roth IRAs are not the only retirement account options available to investors. Many unique factors that are specific to the individual needs and goals of an investor should be considered prior to selecting a retirement account. Other options exist that may be better suited to your individual needs. 401(k)s and employer match options are not offered by all employers. Please consult your employer regarding their respective retirement plan options and benefits. Please consult a tax professional before implementing a retirement account.
  • EP Wealth Advisors, (“EPWA”) offers services to a variety of accounts, including Traditional IRAs and Roth IRAs. However, EPWA cannot manage or service an individual participant’s account in a Participant Directed 401(k) plan. For this reason, EPWA and their staff may be incentivized to recommend a 401(k) to IRA rollover.
  • There is no guarantee that a Roth IRA or 401(k) will be a suitable option for your retirement needs or that any of the referenced benefits will be achieved or sustained. Accordingly, your personal experience with any of the accounts mentioned in this post may be better or worse than what has been indicated here. or any account referenced herein.
  • Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.   
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To save for your retirement and secure your financial future, you’ve contributed to your 401(k) account at work for as long as you can remember. And ideally, you’ve also maximized the employer match program, too. Great work!

But now you’re about to retire, and you want to plan for your financial future. Part of that may involve figuring out what you’re going to do with your 401(k).

Of course, you can leave your 401(k) alone. It’ll likely grow over time—alongside the market.

But you can also decide to rollover your 401(k) into either a traditional IRA, which might give you more control over how your assets are allocated, or convert it into a Roth IRA, which may give you that same control but also offers additional benefits (you can’t roll a 401(k) directly into a Roth; you need to first convert to a traditional IRA and then to a Roth). If you decide to rollover, timing is very important as it may have an effect on your taxes while supporting your estate planning efforts. However, rolling over your 401k before you are 59 ½ can be more difficult.

Like traditional IRAs, 401(k) plans are tax-deferred. You’ll need to pay taxes on funds when you make withdrawals, which—in the age of the SECURE Act—are required once you turn 72. Roth IRAs, on the other hand, are funded with post-tax dollars—which means you won’t have to pay taxes when you withdraw funds from these accounts if you are over 59 1/2

That being the case, there may be an opportunity in retirement to convert your 401(k) into a Roth IRA at a lower tax rate because you won’t be drawing lots of income. Consult your CPA or a tax professional to assess the impact and benefits of a Roth IRA.

What Are the Benefits of Converting Your 401(k) to a Roth IRA?

There’s a reason why some 55 million Americans have a 401(k) plan: The retirement vehicle delivers a number of benefits to the average earner. In the same vein, there are several benefits that may come with a Roth conversion.

For starters, by contributing to a 401(k), you are able to accumulate tax-deferred money when your income is high. As a result, you’re likely reducing your short-term tax liabilities while building up a decent nest egg for retirement. However, when you withdraw funds, you will be taxed on those earnings.

That’s where a Roth conversion comes in.

If you time it right, Before you start collecting Social Security payments, it may make sense to consider converting your 401(k) to a Roth IRA as you’ll potentially have less income, which could help reduce your tax liabilities. Always consult a professional tax advisor prior to assess your specific situation and prior to implementing any conversion strategy.


Additionally, You can pass on your Roth IRA to your kids; however; they will have to withdraw those funds within 10 years (before the SECURE Act, they could have withdrawn the funds at any point over their lifetimes). What Are the Downsides to 401(k) Rollovers?

Of course, like with anything else, there are pros and cons to converting your 401(k).

For example, creditors generally have easier access to funds held in Roth IRAs—401(k) plans offer protection against bankruptcy, whereas IRAs do not. What’s more, moving away from a 401(k) means you’ll miss out on group buying power benefits—which might mean you’ll end up paying higher fees. Additionally, many employers absorb the costs associated with a 401(k) so participants contributions and assets are not reduced by the compounding affects of these fees. 

When you roll over your account, you may also lose preferential tax treatment. If you keep working past 70½ with a 401(k), you may be able to delay required minimum distributions as long as you’re still employed by the sponsoring company. That’s compared to a traditional IRA, which you are required to withdraw from once you turn 72, That being said,

If you do a rollover, you may also have less flexibility to tap into your funds early. If you retire early or are laid off, you can access your 401(k) funds without a penalty once you turn 55 (you’ll still have to pay taxes, though). An IRA, on the other hand, requires you to wait until you are 59½ to withdraw funds without a penalty. While you can freely withdraw Roth contributions at any time, you may have to pay taxes on earnings if you withdraw them too early.

How to Convert Your 401(k)

When it boils down to it, only you can decide whether it makes sense to convert your 401(k) to a Roth IRA. So first things first: Do your due diligence and assess your options. Because securing your financial future is a major decision, you will want to consult your CPA or Tax Professional and may want to speak with a financial advisor to learn more about what your best path forward might look like.

IRA vs. 401(k): Which Is Best For You?

When it comes to keeping your funds in a 401(k) or converting to a Roth IRA, there’s really no right or wrong answer. Everyone’s financial circumstances are unique, after all. However, in the age of the SECURE Act, some might argue that Roth IRAs make even more sense because you don’t have to withdraw the funds at any particular time.

You’re reading these words, which means you’re likely interested in building a secure financial future so you can live the retirement lifestyle you deserve.

We’re here to help.

Check out our new e-book, The Retirement Planning Guide for People Who Don’t Want to Work Forever, to learn more about what you can do to make better financial decisions.





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