Rollover vs Direct Roth Conversion Calculator
Compare paths to convert retirement funds to Roth.
Tax Impact (Both Paths)
Conversion:$ 50000
Federal Tax:$ 12000
State Tax:$ 2500
Total Tax:$ 14500
Bracket:24%
Same tax impact whether rollover or direct conversion.
Rollover Path (401k → IRA → Roth IRA)
Steps: Rollover 401k to Traditional IRA → Convert Traditional IRA to Roth IRA
Advantages
- Broader investment options
- More control
- No plan restrictions
- Can convert partial amounts
Disadvantages
- Two-step process
- IRA rules apply
- Possible IRA fees
- Cannot reverse
Timeline: 2-6 weeks for rollover, then convert
Direct In-Plan Roth Conversion
Steps: In-plan Roth conversion (if allowed)
Advantages
- Single step
- Stay in employer plan
- No IRA setup
- May have plan loans
Disadvantages
- Limited investment options
- Plan rules apply
- Must leave job to rollover
- Plan may not allow
Timeline: Immediate if plan allows. Requires plan to allow.
Recommended Path
Recommended:Rollover Path
Investments:IRA offers better investment options
IRA offers better investment options worth the extra step
Decision Factors
Rollover Factors
- Need broader investments
- Prefer specific IRA provider
Direct Factors
- Plan allows direct conversion
- Staying with employer
AGI Impact
Added to AGI:$ 50000
Bracket Risk:Within current bracket likely
Convert when tax bracket known. No recharacterization allowed after 2018.
Five-Year Rule
Roth IRA: 5 years from first Roth IRA contribution for tax-free withdrawals
Roth 401k: 5 years from each conversion for penalty-free (amounts subject to ordering rules)
Both require age 59½ for tax-free earnings
Roth Conversion Key Points
- Same tax either path
- Rollover: more control
- Direct: simpler if plan allows
- After-tax: tax-free Roth
- IRA: broader investments
- 401k: plan rules apply
- 5-year rule applies
- No recharacterization
- Consider timing
- Check plan allows