Expert: Allen - 4/17/2007

Question
Hi, I am about to quit my job. I have a profit sharing plan called a Keough and a 401K. I have a Roth IRA on my own. What do you recommend I do with the 2 company plans? Is it true I cannot roll both over into my Roth?  thanks

Answer
I cannot give you a definitive recommendation on what you should do with your plan assets. The answer depends on your financial situation and many other factors which should be reviewed by a competent financial planner.

However I can give you some answers:
1. Most individuals should roll the money to an IRA. If you do not roll you will have to pay federal incoime tax, state income tax (in most states) and a 10% federal excise tax (if you are less than 59 1/2 years old). In addition, if you roll you will not pay current taxes on the investment earnings on the IRA. Taxes will be due when you do take the money out. But you should be able to benefit by the fact that the investment earnings are accumulating on a pre tax basis.

2. You can not roll over to a Roth IRA. You can only roll to a regular IRA. However once in the regular IRA you can transfer to the Roth this year if your taxable income is below certain thresholds. You can also transfer to a Roth in 2010 no matter what your income. However, before you transfer you should look at the implications. The Roth makes the most sense if you expect to be in a higher tax bracket after you retire.