In this clip from "Financial Planning Q&A 60" on Motley Fool Live, recorded on Jan. 26, Motley Fool contributor Dan Caplinger analyzes the advantages of a Roth IRA versus a Roth 401(k) and discusses the questions to ask your employer when considering a conversion.
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Dan Caplinger: In general, if you have a 401(k) from a previous employer, you can convert it to a Roth IRA directly. It'll be treated just like a conversion. Pretty much the same way as an IRA to Roth IRA conversion. If you are still in service with that 401(k) at a present employer, you're going to have to talk to your present employer about whether the plan allows in-service distributions. Many don't. You may not be able to get access to that money to do a conversion to an individual Roth IRA. As far as the advantages of a Roth IRA versus a Roth 401(k), the two big ones are that Roth IRAs do not have required minimum distributions at age 72. Roth 401(k)s, like any other 401(k) account, do have those requirements. The other thing is that [with] a Roth 401(k), you're going to have a menu of investment choices that your employer picks. The Roth IRA gives you a wider selection of just about any investment that you can make. If you don't like the investment options in the Roth 401(k), a lot of folks prefer the Roth IRA just the same way as with the traditional 401(k) and a traditional IRA. A lot of folks prefer that level of flexibility.