A Roth conversion is the process of moving funds from your Microsoft 401(k) Plan into a Roth account. The primary benefit of a Roth account is that, while contributions are made with after-tax dollars, qualified withdrawals in retirement are tax-free. This can be a powerful tool for managing your tax liability and ensuring a tax-free income stream in retirement.
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Whether you choose an in-plan or out-of-plan conversion, understanding the process and benefits can help you make an informed decision. It's important to understand the tax implications and ensure you have the necessary funds to cover any taxes owed on the conversion.
To learn more about Roth conversions, watch Roth in-plan conversion: Save more through the Microsoft 401(k) Plan.
An in-plan Roth conversion allows you to convert eligible funds within your Microsoft 401(k) Plan into Roth funds. The converted assets will appear as a Roth balance in your Microsoft account.
An out-of-plan Roth conversion involves moving funds from your Microsoft 401(k) Plan to a Roth IRA outside of the Plan. Here's what you need to know:
To request a Roth conversion, call Fidelity at (888) 810-6738. You can request a Roth conversion at any time and there are no restrictions based on income or marital status. In addition, there is no annual limit on the amount to be converted.
Quick tip! You can set up daily automatic Roth in-plan conversions for new payroll after-tax contributions at Fidelity NetBenefits on the Contributions page. With this election, Fidelity will convert new after-tax contributions into Roth within the Plan on the same day they are contributed to the Plan.
Note: Only new payroll after-tax contributions, made after the date of your conversion election, will be converted to Roth with this feature. To request a conversion of any other balances that aren’t captured by the automatic conversion feature, call Fidelity at (888) 810-6738.
Deciding between an in-plan and out-of-plan Roth conversion depends on your individual financial situation and retirement goals. Here are some factors to consider:
The Microsoft 401(k) Plan is designed to help you save for retirement and is regulated by federal tax law, so you generally can’t withdraw money from the Plan until your employment with Microsoft ends. However, there are some exceptions to this rule, including withdrawals of after-tax and rollover balances. Former employees or current employees age 59 ½ and older may withdraw all or any portion of their Roth in-plan conversion balances at any time. Current employees who have not yet reached age 59 ½ may only withdraw their Roth in-plan conversion balance that came from after-tax and rollover contributions. That means withdrawals of converted amounts such as pre-tax and company matching contributions may be restricted if you are under age 59½.
Roth in-plan conversion withdrawals must be made in cash, except you can choose to receive some or all of your Roth in-plan conversion assets in Microsoft stock as shares of Microsoft stock.
If you withdraw converted Roth money, the earnings portion (since conversion) will be federal income tax-free if the distribution is qualified (at least five years from your first Roth contribution or conversion, and after you reach 59½). If the withdrawal is not qualified, you’ll typically owe income taxes plus a 10% penalty on the earnings since conversion, and a 10% penalty on the portion of converted funds that were taxable upon conversion.
Note: Before making a decision, be sure to read all relevant tax information, including the Special Tax Notice Regarding Plan Payments, and consult with your personal tax advisor.
To request a Roth conversion, call Fidelity at (888) 810-6738. You can request a Roth conversion at any time and there are no restrictions based on income or marital status. In addition, there is no annual limit on the amount to be converted.
Quick tip! You can set up daily automatic Roth in-plan conversions for new payroll after-tax contributions at Fidelity NetBenefits on the Contributions page. With this election, Fidelity will convert new after-tax contributions into Roth within the Plan on the same day they are contributed to the Plan.
Note: Only new payroll after-tax contributions, made after the date of your conversion election, will be converted to Roth with this feature. To request a conversion of any other balances that aren’t captured by the automatic conversion feature, call Fidelity at (888) 810-6738.