UpstateNYUPSer(Ret)
Well-Known Member
I am sure your financial "advisor" has only your best interest at heart.
You can not just roll over a traditional 401k into a Roth IRA without paying taxes on the amount transferred. Those monies transferred are taxed as earned income.
As an example, if you transferred $200,000.00 from your 401k to a Roth you would pay an effective tax rate of 18.6%, which would be about about $37,000.00.
If you transferred $400,000.00 your effective tax rate would be 28.8%, which would be about $115,000.00.
That being said, you "expect" a 8% return, not a guaranteed 8%. Only an annuity can make that promise.
Now that your nest egg has been reduced by paying taxes, your "advisor" will still take 1.5% yearly commission on your monies no matter what percent the funds make. If you "make" 8%, you only keep 6.5%. If you lose 10%, your "advisor" still makes 1.5% on what you have left.
For young people under the age of 45, the Roth is the best way to go. I will not go into the math of why that is the case.
If you only take 5% out of your 401k yearly, you will pay less effective tax rate and not give away your hard earned money to an "advisor".
You are incorrect in your assumption that I will have to pay taxes on the rollover.