I thought a 401(k) could be rolled over into an IRA between jobs. And that an IRA could be rolled over into a Roth IRA whenever.
Or does the IRS have specific rules about that kind of deal?
On the gains I guess? Seems better now than later, especially when your income is down.
You can and should roll a 401k into a traditional IRA every time you switch jobs, both are "Pre Tax" meaning you did not pay any income tax on the contribution so they are treated the same way and there are no taxes/fee's due.
A roth IRA is "Post tax" meaning it has already been taxed (ex you have $6,000 in a saving account and decide to start a roth IRA).
If you convert your "pre tax" traditional IRA into a "post tax" roth IRA the entire amount is taxed as if you earned the income in the year you converted it. (Or maybe its just the contributions? and gains are not taxed?)
Scenario: You make 100k a year. You also have 100k in a traditional IRA and want to convert it into a Roth IRA. Since the traditional ira money was never taxed you would have to pay income taxes on the entire amount you are converting (or just your contributions, still not sure but lets assume for brevity its the entire amount), your income for the year would be 200k and the 100k you converted would be taxed like its the income you made between $100,001 and $200,000. Thats alot of taxes to pay.
The only time converting a "Pre tax" traditional IRA into a "Post tax" roth IRA makes sense is when your income extremely is low and you have money to pay any taxes you might owe if any (going back to school/taking a year off to fish on every continent/etc).
Scenario: You quit your job in December and moved back into your parents basement for the next year to pursue your dream of being a professional BBS'r, you didnt make any money for the year but have 10k in a traditional IRA you want to convert into roth IRA. Your total taxable income for the year after the conversion is 10k and you would pay nothing in taxes on the conversion since people who make 10k a year dont pay income taxes. Poof, you never paid any taxes on that 10k when you contributed it to your traditional IRA and wont have to pay taxes when you withdraw it in retirement or after 5 years from your roth IRA(unless the gubment changes their laws).