Is it possible to convert a traditional 401k to a roth in increments so I do not get taxed on the entire sum at once?

Over at Brightscope we read: Is it possible to convert a traditional 401k to a roth in increments so I do not get taxed on the entire sum at once?  I want to convert my traditional 401(k) with an old employer to a Vanguard Roth 401(k). 

Answer: 

1 vote

John A. Frisch CPA/PFS, CFP®, AIF®, PPC Level 15

Hi Robert,

If you are asking if you can convert from a traditional 401(k) account to a ROTH 401(k) 

account the answer is that rules allow partial conversion but your Plan may not. Even

 if your plan does allow conversion to a ROTH 401(k) they limit the conversion to 

participants who are over age 59-1/2. And even if they allow conversions for participants 

of any age they may limit the conversion to certain account types such as only your 

employee contribution account and not the employer contribution account. Lastly, the 

Plan has the ability to limit the amount and frequency of the conversion. So, for example, 

conversion amounts may be limited to the entire lump sum account balance in which case 

you will not be able to make incremental conversions.

If you are asking if you can convert your traditional 401(k) to a ROTH IRA then this is also 

permitted by law. However, again, you have the Plan rules to contend with. If you are still 

working for the company with the 401(k) then you have to be sure that you qualify to take 

money out of your 401(k) while employed. This is called an 'in-service' distribution. If your 401(k) 

is with a prior employer then you can arrange to rollover your balance into a ROTH IRA but you 

have to be sure that the plan allows partial withdrawals. They may require a lump-sum. If they 

require a lump sum the work around is to take the lump sum distribution from your 401k and roll 

it into a traditional IRA. This will not be taxable to you. Once it is in the traditional IRA you can 

make annual conversions from the traditional to the ROTH IRA.

Hope this helps.