Deciding whether to transfer funds from a traditional account to a Roth 401(k) or Roth IRA for tax-free savings is a complex decision. Seeking advice from a professional tax adviser can guide you through the available options.

Having financial flexibility during retirement to maximize spending while minimizing taxes is advantageous. Keeping some retirement savings in a tax-free account provides future options. Converting a portion of tax-deferred savings from a 401(k) or traditional IRA into a Roth account enables tax-free growth and withdrawals after a holding period of at least five years following the rollover.

Unlike creating a new Roth IRA with annual contributions, converting to a Roth account has no income limitations. In retirement, having Roth savings allows greater control over withdrawal amounts and timing compared to traditional tax-deferred accounts where mandatory distributions start at age 73.

While Roth conversions offer these benefits, they may not be suitable for everyone. Factors to consider before making a decision are essential.

The majority of 401(k) plans allow participants to establish a Roth 401(k) account within the plan, with some permitting in-plan Roth conversions. In such conversions, taxes are due on the amount converted in the year of conversion. The decision on conversion amounts often depends on the individual's ability to pay the tax bill upfront.

Certain questions need to be addressed before making a move, making it advisable to seek guidance from a CPA or a certified financial planner with expertise in taxes. Consulting with a professional can help evaluate the suitability of a conversion, especially if there are potential changes to tax regulations in the future.