I've changed jobs and my 401(k) amount is greater than $5,000, so for the moment I've left it there. Can I roll that 401(k) over into a Roth IRA?

-- P. J. Taylor

P. J.,

Your 401(k) definitely can become a Roth IRA, the popular investment vehicle created by Congress in 1998. It just needs to become a traditional IRA first.

"Unfortunately, there's still no other way to do it," says Dee Lee, a certified financial planner and co-author of The Complete Idiot's Guide to 401(k) Plans. You must first roll your 401(k) account into an IRA. Then -- and only if your adjusted gross income (line 34 of your Form 1040) does not exceed $100,000 -- you can roll that account into a Roth.

You only can contribute after-tax dollars to the Roth, as opposed to the pre-tax dollars that are in your 401(k) and traditional IRA, so you will owe ordinary income tax on the amount your roll from your traditional IRA into the Roth. But the beauty of the Roth is that if you leave the account open for five years and you're at least 59 1/2, you can withdraw all your earnings tax- and penalty-free. Since your contributions to the Roth will be in after-tax dollars, you can withdraw them anytime.

Here's something to think about, though: As we discussed in a previous Tax Forum, as long as your 401(k) account is at least $5,000, by law you can leave it with your former employer's plan provider. But unless that 401(k) plan offers great investment options, you might be better off moving the account into an IRA as soon as possible. Then you'll have better control of your investments. In addition, you can start to roll pieces of the account to the Roth as you scrape up the money to pay the tax bill.

Loans and Rollovers

I recently changed jobs and have an outstanding loan from my former employer's 401(k). When I received my quarterly statement, included was detailed information about potential tax consequences. I contributed both pre- and post-tax dollars to this 401(k). Is it true that I cannot roll over the post-tax dollars?

My employer will use my account balance to pay off the loan. Will the post-tax dollars be included in this offset? If not, must this money be paid out to me? I called the 401(k) administrator but did not receive very helpful answers to these questions.

-- Ronald Johnson

Ronald,

Let's take your questions one at a time.

If you make both pre-tax and after-tax contributions, your employer is required to keep two separate accounts for you for tax purposes, says Sean Hanna, editor in chief of the 401kWire Web site.

You cannot roll after-tax contributions into an IRA, but you can roll earnings those contributions have generated into an IRA, since you haven't paid taxes on them yet, says Lee.

As for your after-tax contributions, they will be distributed to you. You can't put them into another retirement vehicle, but try to resist the urge to spend them on a new car. They're your savings, so stick them in a mutual fund and let them continue to grow for you.

And since it sounds like your loan came from your pre-tax 401(k) account, you'll have to pay it back from the balance of the pre-tax contributions. Your after-tax account can't be used to pay it off.

Time's Up

If you put your 1999 Form 1040 - U.S. Individual Tax Return on extension back in April, it's due on Tuesday Aug. 15.

If you're not prepared to file your return by midnight that day, you could take a shot and file Form 2688 -- Application for Additional Extension of Time to File U.S. Individual Income Tax Return. But while your first extension was a freebie, the second extension requires Internal Revenue Service approval.

You must give Uncle Sam an explanation of why you can't file on time. And "the summer's been so busy" won't cut it. If you are still waiting on tax information from partnership interests or overseas investments, that would work.

If the IRS approves your request, you'll get two more months to work on your 1999 tax return. If your request is denied, you have 10 days from the date you get the bad news to mail in your return. So at a minimum, you'll have bought yourself a few more days to get organized.

You still can file electronically. Most e-filing sites will let you file your 1999 tax return until Oct. 15, so check out our guide to online tax-filing sites to determine which one is right for you.

Remember, your whole tax bill was due with your original extension back in April. If for some reason, you miscalculated and you owe more, you'll owe late filing fees and interest on that extra amount.

If you don't have enough cash available, you can call 888-2PAY-TAX and charge your taxes to your American Express, Discover or MasterCard. Check out this previous Tax Forum for more details.

One more tip: The deadline for your IRA or Roth contribution was April 15. So don't bother trying to scrape up the $2,000 for 1999 at this point.