Comingled TIRA to 401K

Submitted by Miranda Kaufman-Waldron on Thu, 2022-08-04 16:49

Hi- I have a traditional IRA with comingled funds and I’m planning to rollover the pre-tax money to my employer’s 401K plan, which the plan allows. For ease of example, let’s say $12k is pre-tax contributions and $6k is post-tax contribution and the account balance is now $20k ($2k of gains). Because my employer plan only allows rollover of pre-tax amounts, I need to liquidate that portion of the TIRA.

Two questions:
1) My understanding is that the pre-tax contributions ($12k) plus any gains ($2k) can be rolled over to the employer plan. Once done so, the remaining balance in my TIRA will be the basis ($6k), which can then be rolled over to a Roth IRA. Is that correct?
2) Assuming it is, I should keep only the $6k post-tax amount in my TIRA. With the market constantly fluctuating, how do I ensure that what I liquidate / rollout of the TIRA is only the pre-tax amount plus any gains ($14k), thus ensuring that only the post-tax amount ($6k) remains in the TIRA?

Thanks!



Submitted by Alan - IRA critic on Thu, 2022-08-04 18:49

  1. This is correct. Your plan may ask you to certify that no post tax IRA balance (IRA basis) is included.
  2. Normally, once your plan has accepted the 14k, you would immediately convert the remaining basis in your IRA to your Roth IRA. If you wait, gains generated on the 6k would be taxable when you convert, or losses would result in leftover basis in your IRA that you might be able to apply later on.
  3. Sec 408(d)(3)(H) states that your rollover to the plan is exempt from the usual pro rating and that the amount rolled into the plan is composed first of your pre tax IRA dollars at the time of the rollover.
  4. If you make a mistake from not being aware of your actual basis at the time of the rollover, then there will be a hassle fixing it properly. In your example with 6k of basis, if you rolled over 16k to the plan, then the plan will have acquired 2k of basis that is not allowed under IRS rules. You would then have to notify the plan that they received the 2k, and the plan would then have to distribute it back to you with allocated earnings. If all this occurred within 60 days, you could treat the 2k (but not any earnings) as a rollover back to your IRA, reported as an IRA to IRA rollover. If more than 60 days passed, you would not be able to move the funds back to your IRA because the distribution from the plan is not eligible for rollover and the 1099R received from the plan would be coded as a corrective distribution, which is not rollover eligible.


Submitted by Miranda Kaufman-Waldron on Sat, 2022-08-06 00:38

Very helpful. Thank you!



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