Question 1

Should I roll my old 401k into a Roth IRA?

Accepted Answer

It depends on the fee difference, your current vs retirement tax rate, and your time horizon. If your old 401k charges high fees (1%+) and you have 10+ years to retirement, the fee savings in a low-cost Roth IRA can more than offset the upfront conversion tax. Use this calculator to model your specific situation.

Question 2

Do I have to pay taxes when converting a 401k to a Roth IRA?

Accepted Answer

Yes. A traditional 401k holds pre-tax money, so converting to a Roth IRA triggers ordinary income tax on the full converted amount. You can pay the tax from outside funds (preserving the full balance) or let it come out of the converted amount. Paying from outside funds is generally more advantageous if you can afford it.

Question 3

What is fee drag on a 401k?

Accepted Answer

Fee drag is the cumulative cost of expense ratios and plan administration fees over time. A 401k charging 1.2% annually vs a Roth IRA at 0.04% means 1.16% of your balance is lost to fees each year. Over 20-30 years, this compounds into tens of thousands of dollars in lost growth.

401k → Roth Rollover Calculator

Your Situation

Stay in 401k (After-Tax)

Convert to Roth IRA

Verdict

After-Tax Value Over Time

Cumulative Fee Drag

Year-by-Year Comparison