Craig Wear, CFP, explains how to fund a Roth conversion without extra cash. Skip your $30,000 401(k) contribution and use it to pay taxes on converting $120,000 from traditional IRAs into a Roth instead. You end the year with $120,000 in tax-free growth rather than $30-40k in a regular 401(k).
$30,000
$120,000
$120,000 in a Roth account (instead of $30–$40k in a 401(k))
A lot of people come to us and they think, gosh, I shouldn't do any conversions because I don't have any money outside my company plan. Well, that's absolutely false, because there are ways you can make it happen. And like in this case, they took that same 30,000 that they were contributing to the 401k and instead used it to pay taxes. They could convert, say, $120,000 out of their existing IRAs and 401ks, use the same 30,000 that that they were going to put in the 401k to pay taxes. And now at the end of the year, instead of 30 or 40 in a 401k, now they have 120,000 in a Roth account.
