Putting 401(ok) withdrawal into Roth IRA carries tax implications

Q: Can I take a distribution from my 401(k) plan and roll it into my Roth IRA? — J.S.A., city withheld

A: Your distribution may be rolled into your Roth IRA within 60 days after the 401(k) distribution. The distribution is taxed as ordinary income on your tax return. The 10 percent early-withdrawal penalty is not due for the amount rolled into the Roth IRA. — Sylvia Presley

Q: I have the option of receiving an early payout of my pension plan now or receiving a monthly payout for life or waiting until my full retirement age of 66 and receiving a higher monthly payment. What should I consider with these options? — S.R., Orange County

A: If you take a lump sum payment before age 59½, you would pay tax at ordinary rates plus a 10 percent penalty. You could take a lump-sum payment and roll it into an IRA where it could stay invested in a tax-deferred environment until you reach retirement age. The longer you leave it invested, the more you would benefit from the time value of money and the tax deferral. — Paula Taylor

Have a question? E-mail askanexpert. Include your name (only your initials will be printed), hometown and phone. Questions are answered by Certified Financial Planners from Financial Planning Association of Central Florida. Answers are for educational purposes only; you should also consult a financial professional. Questions and answers may be edited for space considerations.

Paul Brinkman Ask an Expert talkback

Paul Brinkman Ask an Expert talkback

Two Central Florida financial planners joined Paul Brinkmann for a live Q&A session.

 

Two Central Florida financial planners joined Paul Brinkmann for a live Q&A session.

 

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