There are three ways to convert a 401(k) to a Roth individual retirement account (IRA) and these are same trustee transfer, trustee-to-trustee transfer and 60-day rollover, notes the Internal Revenue Service website. Roth IRA contributions are similar to bank accounts as the account holder can withdraw the principal at any time tax-free and without incurring any penalties. The earnings of the contribution may also be withdrawn after 5 years
The Roth IRA was named after Senator William Roth of Delaware, one of the two senators who proposed the idea. The other Senator Bob Packwood was the co-author of the Roth IRA.
There are several ways of how to complete a 401(k) to a Roth IRA, notes the Roth IRA website. One way is the same trustee transfer. If the Roth IRA will be handled by the same financial institution handling the 401(k), the plan holder simply informs the plan administrator to transfer an amount from the traditional IRA to the Roth IRA.
Another way is the trustee-to-trustee transfer. If another financial institution will handle the Roth IRA, the plan holder informs the plan administrator handling the traditional IRA to transfer the contribution directly to the other financial institution. The plan administrator of the traditional 401 (k) will issue a check that is payable to the Roth IRA to the plan holder, who will in turn, hand the check over to the Roth IRA trustee.
Finally, a rollover is also possible. The plan holder will inform the financial institution handling his traditional IRA of his desire to rollover his contribution into a Roth IRA. The financial institution will issue the plan holder a check in his name who will then deposit all or a portion of it to his Roth IRA account.