Rolling 401k to Roth IRA
Hello,
I have read a lot about this topic in the forum, but I still need a little clarification.
I have a traditional 401k with about $20,000 in it (no contributions have been made for over 15 years and I don’t work there anymore). My income is below the $100,000 Roth conversion threshold.
The account has about $5,000 of after-tax contributions and $15,000 of pretax contributions.
I called the plan admin today and they said that I can roll over the $15,000 of after-tax directly to the Roth (they will mail me a check payable to the Roth custodian) and I will get a 1099-R that says it is taxable (and no penalty). This part makes complete sense to me.
The other $5,000, they said that they will pay directly to me and I have 60 days to roll that over into the Roth IRA.
Is this correct? Does the $5,000 become a contribution, or will the IRA company code it as a rollover. Do I cash that $5,000 and re-write a check to get it into the Roth account?
Any info is appreciated.
Jim
Permalink Submitted by Alan Spross on Tue, 2009-10-20 20:41
I think you meant that the 15,000 of PRE TAX would be a direct rollover to your Roth IRA.
In any event, this is fairly simple if you want the entire account converted to a Roth IRA, instead of just the after tax contributions. The plan could just do a direct rollover of the entire balance without segmenting the transaction. Perhaps their platform does not allow for that, so this is probably not worth debating with them. You can just do an indirect rollover of the 5,000 to your Roth IRA, telling the IRA custodian that it is a conversion, not a regular contribution. You can write your own check if you wish.
SInce this is not a conversion from a traditional IRA, you should not have to report it on Form 8606, and the 5,000 of basis is not combined with any basis that may reside in your traditional IRA accounts. This should just go on line 16a of Form 1040, and 15,000 would be the taxable amount on 16b. But take a close look at the 1099R forms you get in January to make sure they make sense.
Note that if you want to recharaterize the conversion for any reason, the funds will have to go to a traditional IRA, they cannot go back to the 401k plan.
Permalink Submitted by Jim Shope on Wed, 2009-10-21 12:48
Yes, Alan, you are correct. I did mean that the $15,000 of pre-tax contributions could be directly rolled over.
Thank you for your, as always, excellent response. You not only provide great answers, you give a lot of supporting details in your response.
I will try to have them roll the entire thing and code each part accordingly, but if they won’t/can’t then I am comfortable with it the other way.
Have a great day,
Jim