Multiple Rollover in 12 months?
Goal is to take a partial distribution from a 401k and convert the amount to a Roth IRA during this tax year. Client is separated from service. Client wants to maintain the balance in the 401k until a litiagation settles.
Clients 401k will not allow the direct rollover to an IRA or Roth IRA of a partial distribution. Client can have a partial distribution paid directly to the client. Can this amount be a rollover to an IRA and immediately converted to a Roth? Or are these considered two rollovers in a 12 month period?
Permalink Submitted by Denise Appleby on Thu, 2008-08-14 23:56
The limit ( to one rollover) during a 12-month period applies only to rollovers between IRAs. It does not apply to rollovers that occur between qualified plans (including 401(k)) plans and IRAs.
If client is eligible for the Roth conversion, why not roll (convert) directly to the Roth IRA?
Permalink Submitted by Roger Kruse on Fri, 2008-08-15 13:56
According to the client and the plan distribution paperwork the plan will not make a partial distribution directly to an IRA or Roth IRA. This is only available if there is a complete distribution from the plan. Under the plan rules a partial distribution can only be made directly to the participant, not to an IRA or to a Roth IRA.
The other issue is that the client is in a lawsuit and does not want to make a total distribution until the lawsuit settles. Otherwise, we could make a total distribution via direct rollover to an IRA and then convert the potion that is appropriate to a Roth IRA.
Permalink Submitted by Denise Appleby on Fri, 2008-08-15 14:52
I am pretty sure they do not have the right to refuse to do a direct rollover to an IRA, whether it is a partial distribution or not. I will check the guidance on that later and provide a definitive response. In the meantime, even if they pay the check to the participant, he can do a 60-day conversion to the Roth IRA ( indirect conversion). No need to stop at the traditional IRA with the funds.
Permalink Submitted by Denise Appleby on Fri, 2008-08-15 17:43
According to the rollover rules, if a distribution amount is rollover eligible, the plan must allow the participant to elect to have the amount process as a direct rollover. An exception applies to amounts that are less than $200, and that is only if the total distribution for the year is under $200.
They can refer to Notice 2008-30 Q&A 4.