You can convert the assets in your tax-deferred 401(k) to a Roth IRA when you retire or leave your job. You must pay income taxes on the accumulated contributions and earnings you’re converting. You report that information to the IRS when you file your federal tax return for the year in which you convert. You’ll also owe state income taxes if your state levies them.
If eventual tax-free earnings and no required withdrawals are an attractive addition to your retirement planning, you may want to investigate conversion. However, remember that a Roth IRA must be open at least five years and you must be at least 59 ½ before you qualify to make tax-free withdrawals. It’s a good idea to consult a tax professional to review your plans before making a decision.
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