410K to IRA Timing
Hello,
Married clients, husband is 34, wife is 32
Combined income approx $500,000
Making non-deductible 2009 and 2010 traditional IRA contributions for conversion purposes (total of $10,000 per person)
Will convert in 2010 with little tax consequence as there are no other IRA assets
Wife recently changed jobs and would like to move her 100,000 401k into an IRA
When can she do this without effecting the conversion (triggering the pro-rata rules)?
Can she do it in 2010 after the conversion has taken place, or does she have to wait until 2011 to roll over that 401k?
As always, thanks in advance.
Kevin
Permalink Submitted by Alan Spross on Wed, 2009-12-16 21:49
2011. Her total TIRA balance on 12/31/10 must be -0- or close to it to avoid making the conversions taxable. They will both need to file an 8606 for 2009 to report that non deductible contribution. Their 2010 8606 will report the 2010 contributions and the conversion as well.
And if they want to do the non deductible contribution every year, perhaps she should leave it where it is for awhile unless the plan expenses are high or does not offer acceptable investment options.
Of course, if they want to roll the plan over and then convert it to a Roth in 2010, then the timing does not matter because the 2010 conversions will get all the after tax dollars into the Roth. They would end up with a Roth total of 120,000 and 50,000 would be taxable in 2011 and 50,000 in 2012. On the other hand, at their marginal bracket they might be better off to report all conversions in 2010 since their marginal rate will almost surely rise in both 2011 and 2012 if their other income remains similar.
Permalink Submitted by Kevin DeNardo on Wed, 2009-12-16 22:04
Thank You Alan – you’re worth your weight in gold.([i]as long as you weight 400 lbs[/i].)
Permalink Submitted by mk foss on Thu, 2009-12-17 03:27
Alan doesn’t weigh 400 lbs. He’s more on the slender side.