Move Traditional IRA to 401K

Submitted by Andrew Weinstein on Sun, 2016-04-03 06:44

I just learned that I can roll my Traditional IRA into my 401K. What are the advantages and disadvantages or doing this?



Submitted by Alan - IRA critic on Sun, 2016-04-03 17:20

  • You can only transfer pre tax IRA dollars to the 401k. Some people with basis in their IRA from non deductible contributions do this so they can convert the IRA basis to a Roth tax free. Other possible reasons are consolidation of accounts, increasing 401k balance for loan purposes, avoiding IRA RMDs if still working at RMD age, accessing the age 55 separation exception from the penalty, and getting better creditor protection if they live in a state that does not protect IRA balances adequately.
  • Possible disadvantages include loss of access to the funds in some cases without separating from the company, loss of certain early distribution penatly waivers that only apply to IRAs, lack of customized beneficiary options,  limited investment options, or high expenses and possible changes to the plan.
  • A 401k plan does not have to accept IRA rollovers. Some that do will only accept them from rollover IRA accounts (those that never received regular IRA contributions).
  • Above statements are generalizations, and exceptions are possible except where IRS rules are involved.

Submitted by Andrew Weinstein on Tue, 2016-04-05 21:47

Thanks Alan. Will moving my Traditional IRA to my 401K make it easier to do a backdoor Roth later?

Submitted by Alan - IRA critic on Tue, 2016-04-05 22:54

Yes, even in the same year you could do a backdoor Roth and convert tax free as long as you no longer have any pre tax amounts in a non Roth IRA. For example, since it is still before 4/18 you could make a 2015 and 2016 non deductible TIRA contribution, convert it and as long as your pre tax IRA dollars are rolled into a 401k prior to 12/31/2016 you conversion will be non taxable. 

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