Got a Roth 401(k) at work? Consider moving some of your traditional 401(k) savings over to the Roth, in a move that’s known as an in-plan Roth conversion.
Be aware that just like any direct contributions you make to your Roth 401(k), any pretax amounts that are converted will be included in your income and subject to taxes.
“The participant would be responsible for taxes on pretax principal and earnings, which could be a very large tax bill,” said Jana M. Steele, senior vice president of defined contribution at Callan.
That increase in income can be dangerous for savers. In the worst case, it can move you to a higher tax bracket.
Consider converting pretax dollars in chunks at a time in order to avoid a sharp spike in income and taxes, said Slott.
Be sure to consult your financial advisor or accountant before you move forward.