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Rollover old 401k/403b directly to Roth IRA or first to Traditional and then to Roth?

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  • Rollover old 401k/403b directly to Roth IRA or first to Traditional and then to Roth?

    Fresh grad, rolled my old 403b directly into my Roth IRA account recently. I came across some some posts however that I was suppose to rollover to traditional first and then to Roth IRA; which one is correct? According to White coat investor it seems like a big no-no to put in Traditional first if I want to do Backdoor in the future:
    https://www.whitecoatinvestor.com/wh...h-my-old-401k/

    "#2 Roll It Over To A Traditional IRA
    This can be a great option if you’re not interested in a Backdoor Roth IRA. Most docs either ARE or SHOULD BE interested, so this probably isn’t that good of an option for a high earner. The benefits of a traditional IRA over a 401(k) can include lower expenses and more investment options. Downsides include loss of the Backdoor Roth IRA option and in some states, less asset protection than a 401(k)."


    Sites like investopedia however stress the need to do this two stop process:
    https://www.investopedia.com/article...%20owe%20taxes.

    "Converting a traditional 401(k) to a Roth IRA is a two-step process. First, you roll over the funds to a traditional IRA; then, you convert that IRA from the traditional variety into a Roth IRA."

    Which one is correct?

  • #2
    Typically you would roll your plan to a traditional IRA and then convert the IRA to a Roth (triggering a taxable event).

    I didn't think you could do it as one step, but just looked on Vanguard's site (https://investor.vanguard.com/401k-rollover/options), and they do in fact allow you to directly convert a 401k to a Roth IRA (triggering a conversion). Learned something new today.

    So I think you are fine, but you can always speak with your brokerage firm to make sure.

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    • #3
      I can't believe Investopedia can be so far out of date. At one time you were required to rollover to a traditional IRA and then do a Roth conversion.

      However, the Pension Protection Act (PPA) of 2006 (effective 1/1/2008) not only allows, but mandates that a plan must allow a direct rollover from a traditional 401k, 403b or 457b to a Roth IRA.

      Note: This only applies to a direct rollover. If you take a distribution from a traditional 401k, 403b or 457b account. You can only do a 60-day indirect rollover to a traditional IRA and then can do a Roth conversion.

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