After doing a lot of research, I want to rollover my 401k to a Roth IRA account. But a couple of years I took some bad advice and borrowed from my 401k. I owe like 0. Should I pay that off before I rollover to IRA, or after?
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If you’ve done a lot of research, you probably discovered that you have to pay off the loan first (or pay 10% plus regular income tax on the $800) and you must have terminated employment to be able to rollover the 401(k) account into any kind of IRA, Roth or otherwise.
Assuming you are able to meet both conditions, request a "direct rollover" from your 401(k) to a Roth IRA. The direct rollover keeps the plan administrator from taking tax withholding.
Most of William’s answer is correct, EXCEPT he is incorrect regarding the need to rollover first to a traditional IRA. You no longer need to do that - for at least the last two or three (maybe more) years, IRS has allowed you to rollover directly from a traditional 401(k) to a Roth IRA.
By moving funds to a Roth IRA, you will have to pay taxes on the funds you convert. But 2010 is special - this year you have the choice of deferring those taxes until 2011 and 2012.
Check out the link I’ve provided below for more details (from the IRS).
First, if you still owe on a 401(k) loan and don’t repay it, the loan balance becomes an early withdrawal (with tax and penalty). Second, if you are still employed at the same company, you probably CAN’T roll over your 401(k) account. Check the plan provisions. Third, you can’t roll a standard 401(k) account (pretax $$$) directly into a Roth IRA (post tax $$$). First, you roll it over into a conventional IRA. Then you can consider converting the IRA to a Roth (there are tax consequences).
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