avoiding the aggregation rules on roth conversions
Is it true that after December 31, 2007, monies that are transfered from a 401 K or 403 b plan directly to a Roth IRA will avoid the aggregtion rules on roth conversion?
Is it true that after December 31, 2007, monies that are transfered from a 401 K or 403 b plan directly to a Roth IRA will avoid the aggregtion rules on roth conversion?
Permalink Submitted by Alan Spross on Fri, 2007-10-19 04:20
IRS guidance is still pending regarding Sec 824 of the PPA, the direct conversion of non Roth qualified plans to a Roth IRA account.
If by aggregation, you are referring to use of Form 8606 aggregating all SEP, SIMPLE and TIRA balances for determination of the basis %, then it does appear that the new direct conversion will avoid all that. The after tax balance in the employer plan could be more or less than the % in a taxpayer’s existing IRA accounts, and the taxable portion will likely only recognize the employer plan being converted.
However, many of the rules need clarification. For example, if the employee converts but exceeds the 100,000 MAGI limit that still applies until 2010, then the conversion must be recharacterized. Exactly how that recharacterization and subsequent reconversions will be handled is not clear. I imagine the IRS will issue some guidelines within the next couple of months.