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Question for the Money Doctors

Question submitted on Aug 8, 2012.

Question

Can you convert or roll over a traditional IRA into a 401K? I know you can roll it over into a Roth but the taxes are going to be too much.

Answer

Yes, if the 401k plan sponsor allows it, you may rollover the tax deductible contributions and earnings but not any non-deductible (post tax) contributions you may have made from your Traditional IRA into your 401k plan.

But should you roll a Traditional IRA to a 401k? Consider a couple of things before proceeding with the rollover.

* 401k plans usually don''t offer the breath of funds that you can get with an IRA

* 401k plans may be a more expensive way to save vs a traditional IRA (some plan costs can be much higher than the IRA)

* you can also have access to and withdraw your IRA funds anytime you wish (taxes and penalities may apply). However, you may have to meet hardship guidelines to access your 401k funds.

* a couple of benefits you may get with the rollover is the ability to withdrawal funds at age 55 from your 401k vs waiting until you are 59 1/2 to draw from your IRA. So, if you think you''ll need your retirement money earlier, this would be a consideration. Also, you may have the ability to borrow from your 401k plan, you can''t borrow from your IRA.


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