I left my job and have $7,000 in a 401(k). Would be possible to pay the tax on the 401(k) and combine it with my Roth IRA? By Kimberly Lankford, Contributing Editor October 2, 2006 I am 26 years old and recently quit my job to further my education. I have a little more than $7,000 in a 401(k) from the job. Additionally, I have about $3,000 in a 5-year-old Roth IRA. I'm aware of the IRA rollover option, but I was wondering if it would be possible to pay the tax on the 401(k) and combine it with my Roth IRA?It's an excellent idea to roll over your 401(k) to a Roth IRA. Even though you'll have to pay income taxes on the converted amount, you'll come out ahead in the long run because you'll have decades of earnings that will all come out tax-free in retirement. It would be best, however, if you waited until you are in school next year to make the change, when your income -- and tax bracket -- will be lower, and you can minimize the tax you have to pay on the conversion. In the 25% tax bracket, converting $8,000 to a Roth IRA would cost you $2,000 in federal taxes. But if you are in the 15% bracket next year, it will cost only $1,200, and if you're in the 10% bracket, just $800. For now, you have to roll over your 401(k) to a traditional IRA and then convert the traditional IRA to a Roth and pay tax on the conversion. The new Pension Protection Act will allow direct rollovers to a Roth IRA starting in 2008 -- but you still have to pay taxes. Advertisement For more information about the new pension law, see What You Should Know About the New Pension Law. Spousal IRAs I am retired and have no earned income, but my wife is still working and has earned income. Does her earned income qualify me to start a Roth IRA? We file jointly and the earned income is less than $150,000. Most people think of spousal IRAs for stay-at-home parents. But you've got the right idea: Even though you generally need earned income to contribute to an IRA, your wife can make spousal IRA contributions for you as long as she earns more than she contributes to both accounts -- $5,000 for each account if you're 50 or older in 2006. To qualify for the Roth IRA, the adjusted gross income on your joint tax return must be less than $160,000 in 2006 (the contribution amount starts to phase out at $150,000). You can contribute to a Roth IRA at any age and won't have to make withdrawals even after you turn 70#189;. For advice on making the most of your IRA, see An IRA Owner's Manual. Got a question? Ask Kim at email@example.com.