IRA Contribution with 401(k) Contribution

Submitted by Harold Leslie on Thu, 2015-04-02 17:26

My daughter, who turned 51 March 30, 2015, contributed to her 401(k), split between Roth & Traditional, at her former job. She’s not yet eligible for 401(k) contributions at her new job. Her 401(k) balances were transferred to a Raymond James account as a trustee-to-trustee transfer, Roth to Roth & Traditional to Traditional. I think that she should be eligible to make a $6,500 contribution as long as it’s done before April 15.

Please confirm that she can contribute $6,500 to an IRA by April 15. She’s already filed her 2014 income tax return. So I understand that if any of the IRA contribution is for a Traditional IRA, she will have to file an amended return. Will she also have to file an amended return is she contributes the full $6,500 to a Roth IRA?

Thanks for any help that you can provide.

Harold



Submitted by Alan - IRA critic on Thu, 2015-04-02 17:37

  • If she makes a Roth contribution, she will not have to amend her return unless she files Form 8880 (Savers Credit), and the Roth contribution will affect the credit. If her income for 2014 is high enough, she will not qualify for a deduction if she makes a TIRA contribution. If that is the case, she should check into a Roth contribution because that has a higher income limit. If her income is also too high for the Roth contribution, then she is left with only a non deductible TIRA contribution option.
  • She should carefully check that the Roth 401k balance ended up in her Roth IRA, and the same for the traditional part. There have been some errors reported this year in these rollovers, both in the 1099R issued, and in the accounts the funds are transferred to. It is much easier to correct errors if they are caught and reported early. She also should make some accounting notes on her Roth IRA showing the composition of the Roth IRA after receiving ROth 401k funds in a direct rollover.


Submitted by Harold Leslie on Thu, 2015-04-02 23:27

Alan,Thanks for your prompt & very helpful reply.  She doesn’t file Form 8880 for Saver’s Credit so a total or partial Roth contribution should be valid.  Glad that she won’t have to amend her return if she contributes only to a Roth IRA.  We use TurboTax to file her taxes so that should determine if her income is too high for TIRA contribution deduction but I don’t think that it is.Thanks also for pointing out that she should check that the transferred balances ended up where they should.  And I agree that it’s a good idea to make notes about the Roth direct rollover (actually bot the Roth & TIRA portions).  Currently, it’s all in cash & that will be changed when she decides what to do with those funds.  One concern that I have is that her Raymind James advisor wants her to combine the rolled over TIRA account into her existing TIRA account.  (She doesn’t have an exisiting Roth account, only the rolled over Roth funds.)  I advised her against this because, if her employer or a future employer permits transfers into a company 401K, she would only be able to do this if the funds were kept segregated.Again, I sincerely appreciate you very helpful message.Harold



Submitted by Alan - IRA critic on Thu, 2015-04-02 23:45

Harold, the rule that prevented IRAs from being rolled into a 401k unless they were rollover or conduit IRA accounts ended in 2002. The IRS Rules permit all pre tax dollar in TIRA account to be rolled into an accepting employer plan. However, some of these employer plans still will not accept IRA rollovers at all, some will only accept rollovers from rollover IRAs and many will accept rollovers from all TIRA accounts. The chances of acceptance are therefore somewhat higher if the rollover is kept in a separate account rather than combined with IRAs that received regular contributions.



Submitted by Harold Leslie on Fri, 2015-04-03 04:48

Thanks again, Alan, for your prompt & very useful information.Harold



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