[SpamCop-Social] Re: 401K withdrawals.

[Kenneth Brody]

indigo wrote:
[...]
> I googled to find out what I was remembering -- in 1998, when Roth's were
> "invented", you could rollover a tradition IRA into a Roth and spread out
> the tax payments over the next four years. Now if you do it you have to pay
> all the taxes at once, right then and there. The money is treated as taxable
> income at the time of the conversion.

Traditional IRAs are funded with pre-tax dollars, and you then pay taxes
on the back-end when you withdraw it.  (Hence, "tax deferred".)

Roth IRAs are funded with post-tax dollars, and you don't have to pay any
taxes on that money later.  (No double-taxation.)

Therefore, when you convert a Traditional to a Roth, you have to convert
the pre-tax dollars to post-tax dollars by paying income tax.  However,
there is no penalty for the conversion.  I was unaware that you used to be
able to spread the payments over four years.

-- 
+-------------------------+--------------------+-----------------------------+
| Kenneth J. Brody        | www.hvcomputer.com |                             |
| kenbrody/at\spamcop.net | www.fptech.com     | #include <std_disclaimer.h> |
+-------------------------+--------------------+-----------------------------+
Don't e-mail me at: <mailto:ThisIsASpamTrap at gmail.com>