401k rollover from Schwab to Vang
I had a 401k at Fido through ATT.It was/is all pre tax $$.
When I left ATT I rolled it over to Schwab.Schwab now being the custodian.
I also have a trad IRA at Vanguard that is all after tax $$
I want to move the Schwab rollover acount to Vanguard but want to keep it seprate from the traditinal IRA as I have been told not to comingle pre tax with after tax.
Is the Schwab account no longer a 401k rollover?
Is this seperation necessary as I was told it makes it easier if I take money out for tax purposes and also at RMD time.
Is it possible to do this move to Vanguard and is it necessary to keep the funds seperate.I want everything under one roof.
Permalink Submitted by mk foss on Sun, 2012-02-19 22:16
There are two reasons to keep a 401k rollover separate from a traditional IRA. One is no longer necessary – historically in order to roll a previous employer’s qualified plan benefits into a new qualified plan – the funds had to be kept separate. That’s no longer the case, if the new qualified plan will accept it – you can roll over traditional IRA funds as well as a former 401k plan. The new employer’s plan can’t take after tax money – but you’d know how much that is by looking at your lastest Form 8606 which should summarize the basis in after-tax IRAs.
The second reason that a 401k would be kept separate from a traditional IRA is for bankruptcy protection. For federal bankruptcy purposes, the 401k rollover is 100% protected from creditors. All other IRAs combined has $1 million in brankruptcy protection. So if you’re not concerned about a possible bankruptcy filing, you can combine the rollover with the traditional IRA. For purposes of Roth conversions and RMDs the IRAs are treated as one in any case.
Creditor protection, other than bankruptcy, varies from state to state and is a bigger concern for many than a possible bankruptcy.
Permalink Submitted by Peter Lingane on Mon, 2012-02-20 02:10
When you rolled the 401k to an IRA at Schwab, you comingled your after-tax and pre-tax contributions. Absent the bankruptcy issue, there is no longer any reason to have more than one IRA.
Permalink Submitted by PAUL PILLION on Tue, 2012-02-21 19:44
[quote=”[email protected]“]When you rolled the 401k to an IRA at Schwab, you comingled your after-tax and pre-tax contributions. Absent the bankruptcy issue, there is no longer any reason to have more than one IRA.[/quote]
How did I co mingle pre with after whaen the Schwab account consists of all pre tax 401k $$ and pre tax company buy out $$…..There was no after tax $$ in the 401K so there is no after tax $$ at Schwab.
I do have a TIRA at VG which is 100% after tax $$
Permalink Submitted by Alan Spross on Tue, 2012-02-21 20:20
Remember that your basis from TIRA non deductible contributions is not confined to any one account. The basis is a % of your total TIRA values and a rollover IRA is nothing more than a TIRA that was created from an employer plan rollover.
As soon as the Schwab rollover IRA was funded, your basis % dropped as a result since the dollar amount of basis is a lower % of the new higher total TIRA values. In other words, your basis has been commingled. What you were told about keeping the accounts separate for tax reasons was incorrect. For tax reasons there is absolutely no reason to keep them separate or not to rollover the Schwab IRA into Vanguard.
With respect to the bankruptcy protection issues, if you live in a state that does not totally protect IRAs from creditors and if there is any chance your total TIRA balance will exceed 1mm, then you may want to keep the rollover IRA separate because a rollover IRA has no dollar limit on creditor protection in bankruptcy. If you are concerned with that, you can still roll the Schwab IRA to Vanguard, but you would keep it as a separate IRA account number at Vanguard showing it as a “rollover” IRA. Again, this does NOT affect taxation issues.