Can I roll my 401k to an IRA safely?

[steran]

I haven't met with the creditors yet, that's on Dec. 6, 2006. I have a 401k I am thinking of rolling over into a ROTH IRA to pay the tax penalties with my 2006 tax return since I have to surrender my return anyways. Is this the best option for me? I am also wondering if I really have to surrender my refund or have I been given false information. Can someone fill me in?

[HHM]

You will, more than likely, have to surrender your refund.

[SinkingFast]

We had our 341 on Oct 11th and we just got our letter yesterday from the Trustee. We have to sign and send it back, acknowledging that the Trustee plans to examine our Income Tax Returns for 2006 and may Administer a pro rated portion of our return, if any, for the benefit of our Creditors.

The letter warns, and I quote,.........

"Failure to comply with the above directions may subject you to a Denial or Revocation of your Discharge."

Trustees are really interested in income tax refunds during tax season and late in the year filers. Tax season filers, the check comes right then. Late in the year filers, the Trustee can take 75%+ of your 2006 return. It's prorated based on when you filed.

[steran]

Ok, being that I will have surrender my tax refund, would it be in my best interest to rollover my 401k into a ROTH IRA before years end to take care of the tax penalties. If I do it now I will have to claim it on my 2006 tax returns, or do you guys think the trustee will ask why I did that?

[CindyLou]

to me, it would make more sense to do that after your 341 and then factor it in on your return. also, could you change your withholding for your last few checks so that the amount taken out isn't so much?????

[SinkingFast]

Instead of taking the money directly yourself, why don't you arrange and indirect rollover?? Have your employer send the funds to whatever investment firm you choose.

If you use 401K funds to pay the early withdrawal penalty now, you may effectively defeat the purpose of the ROTH IRA. The cost of converting could outweigh the benefit of Federal "tax free" growth.

[Grace]

You can't rollover a 401k directly to a Roth. You have to roll it over to a traditional IRA first and then a Roth and then you'll pay taxes. Talk to a professional financial adviser about this to see if this is beneficial for you. It depends on your current savings level and current and future tax brackets.

[CATCHMEIFYOUCAN]

Why dont you just let it sit until you really know what you want to do with it .. 401k's are exempt from Bk, in most states, if you just let it sit than the trustee cant touch it. You don't need to tell him what you plan to do with it. Just tell him you have money in a 401k, I doubt he will ask you what you plan to do with it (for obvious reasons most know its a "retirement" fund) these are just my thoughts .. I'm no one special. I have a 401k just sitting since I've quit one job and the trustee hasn't even mentioned it (AND I HAVE BIG PLANS! heh heh)

Good Luck, Catchmeifyoucan