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Investing Specialists

6 Questions to Ask Before Converting a 401(k) to Roth

A new provision in the tax code makes 401(k) conversions more widely accessible, but the maneuver could trigger a big tax bill.

There's nearly $3 trillion of investor assets sitting in 401(k) plans, and Uncle Sam wants a piece of the action. 

Dollars stashed in traditional 401(k) plans aren't typically taxed until withdrawal during retirement. But a new provision--part of the American Taxpayer Relief Act passed in the first days of 2013--would allow the government to get its cut sooner by allowing participants in traditional 401(k) plans to convert their assets to a Roth 401(k) while they're still employed. Participants would owe taxes on the amount converted, but, once taxed, the remaining dollars would compound on a tax-free basis and wouldn't be taxed upon withdrawal in retirement.