Three years ago, due to economic conditions, my employer stopped contributing to their 403B plan. Can I roll this 403B into a ROTH without paying taxes or penalties? Is there a way to do this without the 20 percent/10 percent for early withdrawal? – Karen


We love the idea of tax-diversification – having a mix of taxable, pre-tax (like your 403(b), and tax-free (Roth) investments. So your idea has a sound basis. However, there’s no way to move your money from a pre-tax investment like the 403(b) into a Roth without paying taxes. Such a move is called a conversion and if you convert directly from your 403(b) into a Roth there would be no penalties for early withdrawal, but the entire amount of the conversion would be considered taxable income and subject to income tax. Depending on the size of your 403(b), this could be traumatic. Working with your tax advisor, it may be that you could convert a smaller amount of the 403(b) to a Roth and take advantage of where you stand within the income tax brackets. For example, maybe you could have an additional $10,000 of income and still be taxed in the 15 percent tax bracket. If that was the case, converting $10,000 might be palatable. On the whole, we like you’re thinking, but unfortunately your plan cannot be executed without tax ramifications.