Does anyone know if there is a discussion board on The Fool, or any articles, covering this topic? Seriously considering doing one of these and am interested in any feedback from those who have or are familiar with the process.
Thanks!
Bimmer
Does anyone know if there is a discussion board on The Fool, or any articles, covering this topic? Seriously considering doing one of these and am interested in any feedback from those who have or are familiar with the process.
Besides asking here, this topic also gets discussed quite a bit on the Retirement Investing board https://discussion.fool.com/retirement-investing-100154.aspx?mid…
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Does anyone know if there is a discussion board on The Fool, or any articles, covering this topic? Seriously considering doing one of these and am interested in any feedback from those who have or are familiar with the process.
As already mentioned, this and the Retirement Investing board are probably where this subject comes up the most.
What are your questions? I have been doing partial Roth conversions for several years.
AJ
Hi AJ,
Thanks for responding.
I want to do exactly what you are doing. My accounts are held by Etrade where they unfortunately seem to have no idea how to make this happen.
So I’m stuck.
Any advice you have will be greatly appreciated.
Thank you!
Bimmer
I want to do exactly what you are doing. My accounts are held by Etrade where they unfortunately seem to have no idea how to make this happen.
So I’m stuck.
Any advice you have will be greatly appreciated.
Thank you!
Bimmer
aj will no doubt be along but I will get the ball rolling. I too have been doing Roth Conversions for a number of years.
Not sure what you mean when you say “Etrade where they unfortunately seem to have no idea how to make this happen.”.
E-trade, like most brokers, does offer Roth Accounts.
https://us.etrade.com/what-we-offer/our-accounts/roth-ira
All you do is set one up. Then transfer assets from your T-IRA to the Roth. Voila, you have done a Roth Conversion.
The “Art” of Roth Conversions is figuring out the amount to convert in a given year. There are a lot of moving parts. I will leave it at that for now.
You may want to move your question over to the Retirement Investing board. Roth conversions get a lot of discussion over there.
Here is a link
https://discussion.fool.com/retirement-investing-100154.aspx?mid…
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Suggestion: Open up Traditional and Roth IRA accounts at Fidelity (or any other “real” brokerage), and fill out the paperwork to move all of your Traditional IRA holdings to the Fidelity TIRA account, in kind. Fidelity will make it easy/trivial to do your conversions to Roth. Life’s too short to be hamstrung by E*trade, whether in reality or simply by incompetent staff.
The whole process will not take more than two weeks.
My accounts are held by Etrade where they unfortunately seem to have no idea how to make this happen.
So I’m stuck.
Do you already have both a regular IRA and a Roth IRA at Etrade?
If you have both types of accounts, AND you know how much you want to convert from regular to Roth, it’s likely just a matter of navigating to the right web page and filling in the form.
From a quick search - this page:
https://us.etrade.com/what-we-offer/our-accounts/roth-ira
has a section “What is a Roth IRA conversion and how can it be requested”
And that section has a link to the IRA conversion page:
https://us.etrade.com/e/t/iradist/rothiraconvselector
Even has a pulldown where you can tell them to open a new Roth IRA account if you don’t already have a Roth IRA with them.
I haven’t personally used Etrade for my Roth. I’ve used a different broker. I would expect any of the brokers with a decent web interface it’s just a matter of going to the right form, selecting the accounts, and filling in how much to convert. And my experience is if you can’t find the right form easily with a web search or help search, asking through their messaging system will get you an answer fairly quickly.
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I want to do exactly what you are doing. My accounts are held by Etrade where they unfortunately seem to have no idea how to make this happen.
Never done a conversion at eTrade, so I’m not sure how to help with the details, but as others have suggested, if you don’t already have a Roth IRA open at eTrade, that’s probably the first thing to do. If eTrade can’t give you enough information to figure out how to do the transfer from the Traditional IRA to the Roth IRA, then I would also second the suggestion of investigating opening accounts at another brokerage. Personally, I am aware that Vanguard, Fidelity and Merrill Edge all have webpages set up to do the conversions pretty easily - you just tell them how much (either in shares or dollars) and they will move the money. As a bonus, you may be able to snag a bonus of a few hundred dollars by transferring your account to a different brokerage, as it’s the time of year that brokerages are looking to entice customers to open accounts with them. (Probably not at Vanguard, but I’ve gotten bonuses at both Fidelity and Merrill Edge before, and I think I’ve seen Schwab offer them, too.)
AJ
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Thanks to all for responding.
At Etrade I have a Roth IRA and a Traditonal 401k.
Regarding the transfer to another broker: I had that idea too, but wanted to investigate what others have done and/or see if they/anyone had encountered the same challenges I’ve experienced.
At this point those questions have been answered, so I’ll roll with the advice you’ve provided.
Thanks everyone!!
Bimmer
@ foo1bar:
Been to those pages. That page allows for the exclusive conversion of TIRA assets to Roth IRA ONLY. It does not allow for the conversion of 401k assets to Roth. It’s this conundrum that got my conversation here started.
I spent HOURS…and I do mean HOURS on “hold” just to reach a human at Etrade to ask how to convert 401k assets to Roth.
Nobody knew…or knows…and I went thru many of their people. Not 1 of them knew it was permissible. In fact, I had the IRS website opened in front of me and read to a few of them IRS guidelines directly off the webpage hoping to find at least one person who would perk up and find interest in why the option isn’t available on the Etrade site.
Common and final answer: “we know nothing about it and can’t do it.”
Bimmer
Frustrated with a longtime broker relationship
I have done it fairly recently at Schwab and at Fidelity. Set up Roth in one case, use Roth in the other. Moved selected assets from Trad IRA to Roth. Probably less than 10 minutes(maybe less than 5) each place.
At Etrade I have a Roth IRA and a Traditonal 401k. - bimmer
This may be the root of the problem.
When I left my last employer, I rolled the 401K I had with that employer to Vanguard. The receiving Vanguard account was established as a rollover IRA, not 401K.
So when you say you have a 401K at E-trade, I suspect what is really going on is you have a 401K with your employer and the custodian for that 401K is E-trade. That makes the 401K subject to the 401K plan rules established by your employer and I can see why E-trade can’t get involved.
What you need to do is find out if your employer allows in-service distributions from their 401K Plan. If they do, then you can transfer from your 401K to a new E-trade account in your name. Your funds may be designated as a rollover IRA at E-Trade but the account will at least be in your name. From there you can convert to Roth.
HTH.
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Been to those pages. That page allows for the exclusive conversion of TIRA assets to Roth IRA ONLY. It does not allow for the conversion of 401k assets to Roth.
This is your issue and why you cannot do it. First, you have to rollover the 401k to an IRA. If it is a 401kRoth, then you can roll it to a Roth IRA. If it is a pretax 401k, then you have to roll it to a rollover IRA as Step 1, and then you convert the rollover IRA assets to the Roth.
If you have any employer match in either type 401k, then those are pre-tax dollars, and so you have to roll those into a Traditional IRA. Then you convert those funds to your Roth.
I have recently helped both kids to do this exact thing. It is always a 2-step process from a 401k with employer match because first you have to get the funds out of the 401k and into a similar type IRA, and then you can convert whatever had to go into a Traditional IRA (whether that was your contributions or your employer matching funds) to a Roth.
Leave the rollover Traditional IRA account open even though there may be no assets there so that you can use it the next time. In the case of DD, she had already rolled a previous employer 401k to her own IRA and converted to a Roth, so when she needed to roll the latest one over, the accounts were already in existence.
But your issue is that you have funds in a 401k, and not already in the IRA. And that’s why you are having so much difficulty.
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At Etrade I have a Roth IRA and a Traditonal 401k.
Okay, that’s a different issue than just doing a conversion. Legally, you are allowed to make a Traditional 401(k) distribution directly into a Roth IRA to convert it, but some custodians don’t allow that, and require a 2-step process: Roll the Traditional 401(k) assets into a Traditional IRA and then roll the Traditional IRA assets into a Roth IRA. However, your ability to withdraw from the 401(k) and move it to an IRA depends on whether you’re still employed by the 401(k) sponsor and your age.
So - are you still employed by the 401(k) sponsor? And are you at least 59 1/2?
If you’re no longer employed by the 401(k) sponsor, then you should be able to roll the 401(k) assets into a Traditional IRA and do conversions from the T-IRA into your Roth IRA. If you’ve been doing back door Roth IRA conversions to make contributions to your Roth IRA, and don’t want to have a significant T-IRA balance, then you should see if your former employer’s plan allows partial distributions into a T-IRA. If it does, then you could just distribute the amount that you want to convert into the T-IRA each year and do that conversion. If your former employer’s plan does not allow for partial distributions into a T-IRA, then you have a decision to make - would you rather continue to do back door Roth IRA contributions, or would you rather get the 401(k) account converted?
If you’re still employed by the 401(k) sponsor and at least 59 1/2, then you should be able to do partial distributions. Depending on your 401(k)'s rules, you may have to actually distribute the money to yourself, minus the 20% required withholding, and then do a non-trustee-to-trustee rollover within 60 days. Note: It must have been at least 366 days since you previously did one of these rollovers. If it’s allowed, you should do a partial distribution directly into a T-IRA, and then do the conversion. That way, you will avoid the withholding requirement and not lock yourself into a timeframe before you can do another rollover distribution.
If you’re still employed by the 401(k) sponsor and not at least 59 1/2, then you are probably out of luck, unless your employer’s plan has a Roth 401(k) option that you can do conversions into. That’s because very few employer plans allow for in-service withdrawals under age 59 1/2.
AJ
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It is always a 2-step process from a 401k with employer match because first you have to get the funds out of the 401k and into a similar type IRA
Actually, it’s legal to do this in one step. However, it depends on the rules of the 401(k) plan and the receiving IRA custodian. Some plans and custodians allow direct rollovers from Traditional 401(k)s into a Roth IRA. Many don’t.
AJ
As AJ has already pointed out, the issue is most likely going from the 401(k) account directly to the Roth. I had a similar problem some years ago. And although I was reciting to the custodian the regulations that said I could/should be able to do it in one step…the financial company informed me that they simply couldn’t because they weren’t set up that way. It was not big deal in the long run. Just requires that extra step of 401(k) to TIRA and then TIRA to Roth IRA. All handled as custodian-to-custodian transfers. Went relatively smoothly and quickly. Recall the only drawback was I had to pay an extra fee (perhaps $75?) to establish the middle-man account and 2nd transfer.
Hopes this helps.
MakingTrax
Holy smokes,this is way more involved than I thought.
I’m self-employed, and yes, the 401k is in my company name as the sponsor. And yes, over 59.5…great for the Senior discount at my local golfing venues!! LOL!
Does that mean I’m making the rules as the sponsor of the 401k, since I own the company?
Could I distribute the assets to a SEP IRA and then convert to Roth?
Thanks again for all the input!
Bimmer
Does that mean I’m making the rules as the sponsor of the 401k, since I own the company?
No, it means that the agreement that you signed with eTrade to open the 401(k) governs the 401(k), so whatever rules eTrade has in place are the rules you signed up for. But since you are over 59 1/2, there should be a way for you to roll some of the 401(k) over into a Traditional IRA, even though you are still employed. So you should ask eTrade about that. Then, from the Traditional IRA, you can convert the money into your Roth IRA.
Could I distribute the assets to a SEP IRA and then convert to Roth?
Yes, you could roll to a SEP IRA and then to a Roth IRA, but I’m not sure why you would want to do that instead of rolling to a T-IRA and then to a Roth IRA, unless eTrade says that it will be easier to roll to a SEP IRA instead of a T-IRA.
AJ
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It does not allow for the conversion of 401k assets to Roth.
I think that’s a BIG item you left out.
I (and probably everyone else) assumed you were talking TIRA to Roth conversion.
I think aj485 gave you good advice - move the 401k assets to a regular IRA, then convert from there to Roth.
I wouldn’t wait on hold - I think you’re more likely to get your question routed to someone who can help you by sending it via email (or what’s essentially email via their website).
ex:
“I have account# XXXXX as a 401k at Etrade. I want to move $XXX from it to my Roth IRA account #XXXX. I believe that I should be able to do that, but may need to transfer the money first to a regular IRA account, and then convert the money from there to my Roth IRA. What forms or web pages or such do I need to use to accomplish this? Thank you”
Another option would be to go to a physical Etrade office if there’s one near you - the people there probably aren’t going to be have the specific knowledge needed, but probably have quicker access to the right people than you’ll get via regular phone call.
As AJ has already pointed out, the issue is most likely going from the 401(k) account directly to the Roth. I had a similar problem some years ago. And although I was reciting to the custodian the regulations that said I could/should be able to do it in one step…
I really don’t know why you can’t do that in one step. And I can’t, at the moment, point directly to the official guidance that says you can do it. But I’m pretty sure you can, and I know I’ve seen official guidance that says you can.
And on a personal note, I don’t think there’s a difference here between a 401(k) and 403(b), which work pretty much in synch for most purposes, but my wife took a lump-sum distribution from her 403(b) plan and rolled it into her existing Roth IRA account, with absolutely no problems. And there was no Trad. IRA involved in the middle.
Her situation was a little odd, in that in her last job she was employed by one of the larger health care organizations in our area. And they went through a merger, one of the upshots of which was that they terminated her 403(b) plan, and they kicked out the retirees, and she was required to take a lump-sum distribution. They replaced that plan with a new 401(k) plan. The current employees, including our daughter, rolled their plan balance over to the new plan. And she got a ton of paperwork about this, in which she was advised that she could roll it over to a trad. IRA, or a Roth IRA. In the latter case, or course, it was a taxable distribution. At this point, she was already retired. So she had to take the lump-sum.
So what happened was, they asked how she wanted to handle it. We had them send a check made out to the custodian of her existing Roth IRA, in the form which regular contributions are made, which was BNY-Mellon, and we sent that on to BNY-Mellon with a transmittal letter specifying that this was a rollover contribution to her Roth IRA, acct. no. xxx-xxxx. And we understood that this transaction would result in taxable income, as it was a taxable Roth conversion rollover. And that was it. We never talked to a human, and all the paperwork (1099-R and 5498) were issued absolutely right.
Bill