Tax implication of rolling over a corporate 401k to a Roth IRA account

[qwer1234]

I need to transfer out my corporate 401k after changing my job. I'm considering rolling it over to a Roth IRA account so that the growth can be tax-free.

What is the associated tax implication? Thank you for the advice. 

[macuser_22]

That is a Roth conversion and is totally taxable as ordinary income at your margional tax rate.

You can also just roll the 401(k) into a Traditional IRA tax free and then convert a part of the Traditional IRA to a Roth each year to spread the tax burden over several years.

[qwer1234]

Wow. Marginal tax of the total 401k account sounds a huge tax burden!

If I convert a traditional IRA to a Roth IRA on an annual basis, how will the tax be calculated? 

[macuser_22]

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@qwer1234 wrote:

Wow. Marginal tax of the total 401k account sounds a huge tax burden!

If I convert a traditional IRA to a Roth IRA on an annual basis, how will the tax be calculated? 

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Remember,  a 401(k), and Traditional IRAs's are before tax money, meaning that you have not yet paid the tax, - you pay the tax when you take the money out, but Roth's are after-tax money, meaning there is no tax when you take the money out after retirement, so when you convert before tax money to after tax money you pay the tax at the time of conversion.

Converting a Traditional IRA to a Roth is taxed the same way - at your margional tax rate.

[sandy4042]

I've just done my second year of a Roth conversion of monies from a Traditional IRA that was originally from a 401K. (Actually my husband's IRA, but I handle the taxes).  I wish we had started sooner before Social Security, Medicare and pension kicks in.  The general strategy is to convert an amount that doesn't kick you into the next tax bracket. Take advantage of low income years for conversion.  We are getting Medicare so you also have to be aware of triggering IRMAA (income related Medicare adjustment).