IRA Rollovers and Roth IRAs

Sue Stevens finished her series of articles on IRAs and talked about Rollover IRAs and I learned something new! I had no idea that legislation was passed to allow people to take 401(k)s or 403(b)s and roll them directly into a Roth IRA- starting in 2008. I have 403(b) money in an old account and have pondered rolling it into an IRA and then converting that to a Roth, but that always seemed like a hassle- so I am interested to find out more about this.

Basically if you have a 401(k) or 403(b) plan and leave the company you are contributing to the plan through, you usually have three options.

1. Cash it out and pay penalties and taxes (don't do it).
2. Stop contributing, but leave it alone (some 401(k)s may not allow this)
   
3. Roll it into a rollover (traditional) IRA and as of 2008, into a rollover (Roth) IRA
   

The other thing she mentions is that IRAs and 401/3(kb)s have different dates at which you can begin to take money out without penalty. You can take penalty free distributions from a Traditional or Roth IRA at 59 1/2 but you may be able to make withdrawals from a 401(k) or 403(b) at age 55 if you no longer work at the company you funded the account through.

There are other factors to consider when making this decision- but direct to Roth rollovers and thinking about access before 59 1/2 are good issues to be aware of.