To add to the difficulty of changing employment is the complexity of transferring your existing retirement account to another provider. You want to be careful to not lose the value you have worked so hard to build over the years, and not let a simple thing such as a 401k rollover affect your future retirement goals. In the past couple of years, congress has been working to make the transfer or your retirement funds into other retirement vehicles easier and more transparent. As such, you may now be able to do a straight 401k to Roth IRA transfer from your existing retirement account.
The Roth Individual Retirement Arrangement was named after Senator Roth who sponsored the initial legislation. It was designed to function similar to a traditional IRA account, but with some key distinctions. Rather than providing tax-free contributions into the account, the Roth IRA was designed to provide tax-free distributions out of the account. In return, the account required funds to be taxed prior to deposit into this retirement vehicle.
Both an IRA and Roth IRA provide the investor some form of tax-deferred growth, with the distinction being that growth in the Roth IRA is not taxable upon distribution. The advantages to this sort of account are evident.
To do a 401k rollover to Roth IRA, you must first understand the tax consequences of your actions. The transfer will include a mandatory taxation in the year the transfer is completed. This tax is directed at those funds that would normally be taxable upon distribution out of the 401k account that have yet to be taxed. This can mean a sizable tax responsibility if you intend to transfer a considerable amount from your 401k rollovers.
If you can handle the tax hit from the transfer, you may be able to transfer your taxable distributions into a more flexible and tax-advantaged vehicle. The investment options are typically broader, and the ability to extend the account for generations is a distinct advantage to 401k plans. Before you attempt this sort of transfer, make sure that you fully understand the implications of the rollover.