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Good News if you Plan to Convert a 401(k)
Good News if you Plan to Convert a 401(k) directly to a Roth IRA: New IRS rules offer a sweet deal for any after-tax contributions.
Amounts up to the total of your after-tax contributions can be converted without paying tax. This is much more liberal than when converting an IRA to a ROTH.
In that case, the tax-free portion of the roll-over is based on the ratio of your non-deductible payins to the total in all your IRAs.
If your $60,000 IRA contains $6,000 in non-deductible contributions and you convert $6,000 to a ROTH IRA, just $600 would escape income tax. The other $5,400 would be taxed.
But in the same situation with a 401(k), the full $6,000 would avoid tax. The same goes for 403(b)s and and 457 plans.
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