More Retirees Should Consider This Smart Money Strategy

Retirees often have money they've collected in traditional IRAs and 401(k)s throughout their career. But many miss out on a smart strategy to turn that money into a source of tax-free income for the rest of their lives.

In the following video from our Retirement Q&A series, Dan Caplinger, The Motley Fool's director of investment planning, answers a question from Fool reader Carl about whether you can take distributions from your 401(k) and roll them into a Roth IRA. Dan notes that Roth conversions can be a really smart way to take advantage of lower tax rates and also reduce the amount the IRS will require you to take from your 401(k) or traditional IRA once you turn age 70 1/2. But Dan points out that despite the added flexibility, you should be careful about the mechanics of the transaction, arranging to have transfers made directly from your employer to the financial institution holding your Roth IRA in order to avoid any complications. Nevertheless, for those in the right situation, the strategy can really help your retirement planning.

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Have general questions about Social Security? Email them to, and they might be the subject of a future video!

Read/Post Comments (8) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 10, 2014, at 12:17 PM, GriffKS wrote:

    Instead, consider using the "Yale Endowment Method" to ensure the extended preservation of your retirement savings.

  • Report this Comment On May 10, 2014, at 1:05 PM, kurtdabear wrote:

    It could be a mistake to trust the government to honor Roth IRA's. Our government is not particularly good at keeping its promises. If you look at how Social Security has changed over the years, you can see a trail of broken actual (or implied) promises, e.g., tax-free benefits, normal retirement age, percentage paid early retirees, etc. People paying high current tax rates to start Roths may wind up being taxed in the future or getting pay-outs that would have qualified for lower rates than they paid to buy in. The average person in retirement can get by on quite a bit less than they did while working after doing away with payroll withholding for Social Security, Medicare, state payroll deductions, contributions to 401-K's, life insurance, commuting and wardrobe expenses, lunches, etc.

  • Report this Comment On May 10, 2014, at 3:06 PM, 092326 wrote:

    Please advise me why I cannot e-mail any of your articles?

  • Report this Comment On May 10, 2014, at 5:06 PM, GranburyPaul wrote:

    My comment is actually a question. When converting from a 401k to a Roth what's the simpliest and easiest ways to factor in the tax implications? Does anyone know of a tax calculator to help determine how much is the idea amount to convert each year?

  • Report this Comment On May 10, 2014, at 5:31 PM, herky46q wrote:

    I like to go with the sure thing by getting the immediate tax advantage. That in turn also gives me more money now to invest.

  • Report this Comment On May 10, 2014, at 6:38 PM, muffin311 wrote:

    I hate having to watch a video to get the content on this site. Anyone else?

  • Report this Comment On May 10, 2014, at 6:53 PM, TheAncient wrote:

    Rolling into an IRA or Roth IRA is NOT 'Smart' money. One can get a better rate of return, be just as secure by rolling into Credit Union CDs, who generally pay higher rates than traditional banks. My 401k was giving 35% annually while my Roth IRA 5%. Cashing out of a Roth IRA is the same rate as cashing out of your 401k, ordinary income tax rate.

  • Report this Comment On May 11, 2014, at 9:20 AM, Ostrowsr wrote:

    Best strategy is to have various streams of income. Then when on fizzles, and usually will, the others cushion the impact. I'm keeping my 401K because my fees are very low. A Roth allows various investments that may charge high fees and negate most or all of the benefit.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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