For the most part people when they leave their job will rollover a 401k into a Rollover IRA.  From there they have the decision of further rolling over the 401k to their Roth IRA and paying taxes on it, or keeping it in the form of a rollover IRA.   The question many face is “should I roll it to a roth ira?”             I don’t think it’s a cut and dry situation.  Most would assume a Roth IRA rollover the best idea.  Not necessarily the case.  First, if your modified adjusted gross income is above $100k, you are not eligible to rollover your IRA into a Roth IRA.  Second if you do not qualify for the income limitation, never fear in 2010, the income restriction will be lifted and you can rollover the IRA money into a Roth.  But is it worth it? 

            Here’s the problem, if you make more than $100k MAGI, it’s potentially not worth it to rollover the IRA.  Why?  Because the current tax brackets could make it not worthwhile to pay so much in taxes now versus in retirement.  We’re currently in that position of deciding whether to Rollover DH’s old 401k in 2010, but it doesn’t appear to make much sense.                 To illustrate, let’s assume you make $120k AGI, and have $50k to rollover.  Now using the $120k AGI means the couple is in the 25% tax bracket federally and assuming a 5% bracket State.  But including the $50k rollover as income the new income is $170k = 28% bracket federally and still 5% state tax, which means 1/3 of the $50k will need to be paid in taxes.  However, the kicker is potentially you’d be phased out of a Roth IRA contribution because of the income restrictions of a Roth IRA.   

               To circumvent this, you could rollover $30k - 40k of the IRA a year, but if the income limit of $100k is only lifted in 2010 you’d be in a mess.  Also consider do you believe you’d be withdrawing during retirement enough money to hit the 28% tax bracket?                  I don’t think we will because hypothetically, you can time your withdrawals such that some of it comes from a Roth IRA and some from a 401k.  Another consideration is in the future if you are laid off, or take a break from working, when you have a lower income year, that might be the time to rollover the IRA.  Also consider potentially that Congress could change the rules of the Roth IRA and tax people who are at a certain income level.               I also don’t think there is a one size fits all answer.  It really depends on your age, income, where you live (some states don’t have state income tax, others are 9% like CA), and whether you think you’ll ever have a drop in income.  So before doing anything, carefully consider all different options and scenarios.