Partial Rollover of Traditional IRA to QRP
Is it true per the Internal Revenue Code that I can take a Traditional IRA (consisting of after tax contributions and gains on those contributions) and roll the gains into an employer QRP (assuming the employer plan allows it) leaving only the after tax basis in the Traditional IRA (to be converted to a Roth IRA in 2010)? I had not heard of this strategy until recently and it seems almost too good to be true.
Thanks,
Scott Jacobsmeyer
Permalink Submitted by Alan Spross on Tue, 2009-12-08 20:57
Scott,
Yes, this strategy is entirely valid and has been available for some time. It serves as a way to get any IRA non deductible contributions into a Roth IRA tax free and without pro rating the conversion over many years.
The challenge is the willingness of your QRP to accept the pre tax amount from all your IRA accounts. The QRP cannot accept any after tax contributions and doing so could cause the plans many problems including potential disqualification or expensive corrective action. Accordingly, many plans will only accept incoming rollovers from conduit or rollover IRAs that never received regular contributions. In those cases, a taxpayer could still reduce the amount of pre tax IRA balance considerbly even if some contributary IRA accounts were left intact. Large QRP rollovers are the largest pre tax source for many IRA owners.
Before starting the procedures, I recommend discussing the issue with a knowledgeable plan representative. It may help to consolidate your IRAs first with the after tax basis amount partitioned to a separate IRA account. And if the other account has “Rollover” in the account title, that could only help, even though the “Rollover” moniker does not gaurantee that the IRA holds only rollover contributions.