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September 16, 2005

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One thing that isn't mentioned here is the Rollover Conversion - rollover to a Traditional IRA, than a conversion to a Roth.

I'm currently working and contributing the maximum to my 401(k), but will be heading to law school next year, where I expect to earn very little and thus be in a low tax bracket. I view this as a perfect time to rollover my 401(k) to a traditional IRA; I then plan to slowly convert (over 3 years) my IRA to a Roth. This should allow me to maximize my tax savings by distributing the tax burden over 3 years, while allowing my future earnings to be untaxed.

Of course, this only works if you know (like me) that you plan to be on a low income. But it can make sense even if you make more than a typical student, if you think your tax bracket when you retire will be higher than your current bracket.

Many of the cash outs are for smaller 401k balances.
Very few 401k's over $100,000 are cashed out.

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