A WSB listeners wants to know when it makes sense to convert your 401(k) to a Roth IRA.
Q: I have a question on Roth IRA conversions. But, first I wanted to say thanks for a great explanation on your radio show recently concerning using umbrella coverage versus buying liability coverage with investment property.
My wife and I have several 401(k)s from previous employers ranging from $100,000 to $250,000 each. I would like to convert one or all of these 401(k)s to Roth IRAs but don’t have the liquidity to pay the necessary taxes.
We have significant carry forward losses associated with rental property that is held in our names. Is it possible to use those carry forward losses to offset the taxes that would be due on a Roth Conversion?
A: I’m not sure if you can use the tax loss on rental property to offset 401(k) to Roth IRA conversions.
Typically, you’d be talking capital loss versus income and those don’t necessarily offset each other. But because it’s a more complicated question, please call your tax preparer or an enrolled agent to make sure you’re making the best decision.
As for conversion, I don’t necessarily think you should convert everything. Yes, income taxes are going up. But you can manage that by taking out cash as you need it rather than pushing your marginal tax bracket all the way up now.
Read Dan Solin’s piece on Roth IRA conversions:. He makes the case for converting your 401(k) funds – or not converting them.
And, thanks for the kind words about the show.