Hello, I have 401K. And contributed till now as part of Traditional 401K. Its been total 4 years. Apart from 401K, I have some personal investments as well as part of a separate broker. Those personal investments are in loss. My question is: if I convert my traditional 401K to Roth 401K, I will owe the taxes. Will those taxes get offset from the loss I made in personal investments? Also both the brokerage firms are different. Thanks

@Arfeen KhanEYM, Indirectly yes. The losses you made in your taxable account won't lower your taxes owed on a $1 for $1 basis. That means this: Any capital losses can be used to offset capital gains first. Then, any remaining capital losses (up to $3K of losses per year) can be used to reduce your regular income. So, if you have $14K of losses, but $8K of investment gains this year in your personal/taxable investments, then you have $7K of losses left over. Only $3K of that $7K can be used in this tax year to offset your regular income (the remaining $4K can be used in future years, 3K the following and 1K the year after that). Ideally that works to lower your tax bracket and you pay less in taxes. Does that help?

@Arfeen KhanEYM, you're correct: if you roll a traditional 401(k) over to a Roth 401(k), you will owe income taxes on the money that year (+ you'll owe NO taxes on withdrawals after you retire). Those taxes will be short- or long-term capital gains taxes, depending on how long you held the assets in your traditional 401(k). You can reduce the tax bill if you have losses in your taxable investing account, and I believe there is a limit to the offset (up to $3,000 per year, but the remaining losses do roll over to the next year). Also, think about your tax-loss harvesting strategy (selling assets that show a loss in your taxable account and re-investing that money into a different security that meets your investment needs). Hope this helps.

@Arfeen KhanEYM, It really depends on your entire situation, your age and what figures we're talking about. Have you simulated your situation in a tax platform like TurboTax? If taking a $3,000 loss against your ordinary income lowers your marginal tax bracket you will owe less in taxes for the conversion. Just remember that Roth conversions may make sense in lower-earning years when your tax bracket is lower. One strategy is that in the year you convert to a Roth 401K you also contribute to a traditional 401k or say an IRA where you can deduct those contributions from your taxes. Good luck and feel free to share any additional specifics if you'd like further thoughts.