401A to a IRA rollover, then convert to Roth IRA over several years

Submitted by G Guadagnino on Mon, 2023-07-03 05:43

Hello,

I learned from Fidelity that my 401A employer plan held in Fidelity of $120,000 has to be a 100% rollover to a IRA rollover if I wanted to do partial Roth IRA conversions over several years (ease tax burden for me) or do a 100% conversion of my 401A employer plan to my Fidelity Roth IRA for the entire amount of $120,000 and pay the taxes on that entire amount. In my 403B employer plan held in Fidelity, I am able to do Roth IRA conversions of any amount which I am currently doing. Seems my 401A employer plan has restrictions.

Just want to be sure I can do partial conversions to my Roth IRA over several years once I do the IRA rollover. All of this would be within Fidelity. No issues with 5 year rule since my Roth IRA is over 15 years (sadly unable to contribute since retired), am over 59.5 years and recently retired. I think I got correct info, but wanted to be sure since this is all new to me.

Thank you.
Bella



Submitted by David Mertz on Mon, 2023-07-03 12:04

There are no restrictions on the frequency or amount that you can convert from a traditional IRA to a Roth IRA.  Partial conversions are permitted.



Submitted by G Guadagnino on Mon, 2023-07-03 18:07

Thank you for your response.  Is there a difference between a Rollover IRA and Traditional IRA?



Submitted by David Mertz on Mon, 2023-07-03 20:10

As far as the tax code and the IRS are concerned there is no difference between a Rollover IRA and a regular traditional IRA.  “Rollover IRA” is a leftover from when there was a requirement in the tax code that a rollover from an IRA to an employer plan can come only from a so-called “conduit IRA,” but that requirement was eliminated in 2004.  It seems that there are still employer plans that haven’t learned this yet and will still only accept rollovers that originate from Rollover IRAs rather than any other type of traditional IRA.



Submitted by Alan - IRA critic on Mon, 2023-07-03 20:15

  • They are both traditional IRAs, but a rollover IRA has been exclusively funded from qualified plan rollovers, no regular IRA contributions. A rollover IRA may have better creditor protection in some states. 
  • Some employer plans only allow lump sum distributions (no partial distributions) after separation from service, and your 401a happens to be one of those, while your 403b is not. Since you plan to do incremental Roth conversions each year anyway, it will be probably be easier to do these from your IRA.


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