Dean,

Yes, this is a viable strategy and will work as long as it can be executed. The possible pitfalls are:
1) Current employer plan will not accept IRA rollovers
2) Current plan will only accept IRA rollovers from “Rollover” or “Conduit” IRA accounts because they think it insures them against receiving after tax amounts (it really does not guarantee anything, at best just improves their odds).
3) Current plan has some other requirement to provide them with documentation of the pre tax amount. Some plans assume that the 8606 form is not credible or may not even have been done.

Of course, the whole purpose of this exercise is to retain the after tax amount in your IRA to have dollars to convert tax free. So the last thing you would do is to roll after tax dollars over to the plan, so the plans must think that taxpayers don’t really know how much basis their IRAs hold.

You should try to avoid taking this issue up with a typical HR Rep, and get access to the best authority the plan employs. There have been cases where an HR Rep indicates they will accept the IRA, and then it comes out that there are all sorts of documentation requirements and restrictions. In some cases the money has been trasnferred back into the IRA making the effort a waste of time. If you can, try to get any rollover IRAs you have titled as such before you start the process. This also has benefits if you are in a state that does not offer full IRA bankruptcy protection, because “rollover IRAs” have unlimited dollar protection under the federal Act.

• Flag as spam
• Log in to Reply

No hard time frames, but:
1) Start the IRA to employer plan rollover first, since that is the toughest and you may not even want to convert unless the transfer is successful.
2) After the above is complete, do your conversion before earnings OR losses begin to accumulate in your IRA
3) Be sure your 8606 forms are current reflecting all your non deductible contributions. If not, you can still file them retroactively.
4) Don’t roll any other employer plans into your IRAs until at least 2011, or you will undo the advantage of the recent rollover.
5) Since your conversion would be nearly all tax free, you would opt out of the two year deferral for 2010 conversions and report your entire conversion on your 2010 return. This also keeps the date for which you must avoid additional rollovers into your TIRA from moving up to 2013, which would occur if you had to report your conversion in 2011 and 2012.

• Flag as spam
• Log in to Reply