I just wanted to doublecheck the rules relating to IRA rollovers to qualified plans.
Here is a case that I recall from a few years ago:
[u]example A[/u]
1. Client has $20,000 in traditional IRA. About $18,000 is basis/nondeductibles
2. Client converts $20,000 to Roth IRA in March. IRA is now zero.
3. Later in year, client receives $15k distribution from former employer 401k plan – it was a forced payout – the plan authorized the distribution because the plan is not required to hold funds for former employees indefinitely.
4. The ROTH conversion was treated as partially taxable because a portion of the basis (about $7700) was allocated to the remaining IRA value of $15k at end of year.
[u] Example B[/u]
Here is the general case now.
1. Client maintains at traditional IRA with some basis/nondeductibles – for example $100k value and $20k of basis/nondeductibles
2. does it matter whether client executes a rollover of $80k pre tax dollars in 2009 or 2010? I think it does not matter because as long as the IRA value is zero at the end of the year (12/31/2010), it does not matter. Agreed?
In my example A, the problem was that there was a balance at end of year. Obviously one question to be asked is whether client expects to receive distributions out of qualified plans that might be rolled into that IRA.
Thanks for any feedback.
There are quite a few other examples that could be looked at.
Jim