Monday, January 13, 2014

Can I avoid 401k 10% early withdraw penalty if I first roll it over to roth ira and then take it out?

From Yahoo we read: 

Can I avoid 401k 10% early withdraw penalty if I first roll it over to roth ira and then take it out?

I want to take out my money from 401k

but there is a 10% penalty

to avoid the penalty, my plan is to roll it over to roth ira, and then take out the money

i know i will pay tax for the rollover, and i think i have to wait 5 years before taking money out of roth ira

so after 5 years, i can take essentially my 401k money out of my roth ira without the 10% penalty had i taken it out directly from 401k, is this right, or am i mistaken?


Other Answers (5)

  • filblair answered 6 hrs ago
    The short answer is yes you will avoid the 10% penalty on the amount rolled over, but any gains that your withdraw will be subject to taxes and the 10% penalty. There are other considerations, namely whether your employer will permit you to withdraw the money from your 401k. Also, If your account balance is large enough the Roth conversion could bump you up to a higher tax bracket. If you can withdraw from the 401k there are other ways to access that money without waiting the 5 years and without being penalized, by setting uo substantially equal periodic payments for at least five years. Depending on your age you can take penalty free distributions from your 401k if you retire over the age of 55.
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  • Rusty Nail answered 6 hrs ago
    If your 401K was not a Roth you will pay the penalty. You cannot roll over a standard 401 into a Roth. You can roll over into a standard IRA at no penalty. You cannot withdraw without a penalty until age 59 1/2.
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  • StephenWeinstein answered 6 hrs ago
    There's really no way to tell. Nobody knows what the rules on withdrawals from a Roth IRA will be in five years. Congress can change them at any time.
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  • Amy answered 5 hrs ago
    Yes, five years after the rollover you can take out the money without a penalty.

    But why would you do that? How are you so desperate for money that you want to sacrifice your retirement savings, and yet you can afford to pay the tax now and then wait 5 years?

    Better plan: take the amount you would be paying in tax, and invest it for 5 years.
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  • Bobbie answered 2 hrs ago
    Very slowly and carefully by talking to the trustee of your 401K plan to make sure that the plan would even allow you to try to roll the amount over to a ROTH IRA at that time in your life and of course IF they do allow you to do this the FIT amounts will have to be paid on the taxable amount that would be rolled over during that tax year for that purpose and time in your life to make it a qualified ROTH IRA with after income tax funds.
    So how much is the FIT amount going to be at this time in your life??
    Hope that you find the above enclosed information useful. 01/13/2014


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