If you have a traditional 401 (k) or 403 (b), you can convert your money into a Roth IRA. However, this would be considered a Roth conversion, meaning that you would have to report the money as income at the time of taxation and pay normal income tax on it. You can access your contributions before retirement without tax and penalty. Converting a 401 (k) into a Roth IRA may make sense if you think you’ll be in a higher tax bracket in the future, as withdrawals are tax-free.
The same rule applies to withdrawing converted funds, such as funds from a traditional 401 (k) deposited in a Roth IRA. The main difference between converting your 401 (k) and your own IRA is that the 401 (k) is subject to the corporate plan distribution rules, whereas with your own IRA, you can easily withdraw or convert without going through the company’s planning bureaucracy. The funds converted into your Roth IRA, regardless of whether they come from your 401 (k) or your IRA, are generally taxable. But even with an IRA, if you were subject to RMDs, you still couldn’t convert those RMDs into your Roth IRA.
Plans 403 (b) and 457 (b) for public sector workers and nonprofit organizations can also be converted into Roth IRAs. This RMD amount would first have to be withdrawn from the 401 (k), and only the remaining balance would be available for acquisition or conversion.
