401k rollover of after tax and Roth conversion in same year
I want to roll my 401k to a Roth. I have post tax money that I know won’t be taxable during the distribution. Here’s my question though.
If I convert my existing TIRA to a Roth first, let’s say May 1st 20I0, and have my basis already determined for tax purposes. I would use the total of my TIRA to determine that post tax basis.
If I then rollover my 401k to a Roth IRA directly from the employer plan, on June 1st, does the prior conversion amount go out the door? Will I have to report and adjust the converted amount using the new dollars I just convrted as well. Because now I’ve “technically” added a new amount of money from the rollover (bypassing the TIRA) first.
Would there be just ONE conversion, taking into consideration all the mone I converted, rather than the first calculation I used for converting my TIRA? Thank you
Permalink Submitted by Alan Spross on Thu, 2010-04-08 23:49
Your direct conversion from a 401k to a Roth IRA does not affect your other TIRA conversion at all because the 401k funds will not have become TIRA funds in the process.
Also, if you are doing a full conversion of each account, it would not matter even if you did combine them in a TIRA first because the full balance and all your basis would be converted. The order in which you do these two conversions does not matter either.
The only way you would lose out on converting the basis would be to roll over the 401k to an IRA and only do a partial IRA conversion in that year. That would leave much of your basis in your TIRA and not in your Roth IRA.
You will report your IRA conversion on Form 8606, but the 401k conversion will go directly on lines 16a and 16b of Form 1040. 16b will only show the taxable amount. These would be two conversions and reported separately.
Now if for some reason you chose to recharacterize all or part of these conversions the result would be:
1) If you recharacterize all or part of the 401k conversion, a pro rated portion of the basis would go back to the TIRA and you would then need to reflect that basis on an 8606 to prevent double taxation on any future conversion
2) If you recharacterize all or part of the TIRA conversion back to a TIRA, no basis will be restored to the TIRA because there was no basis in the TIRA originally.
3) You might have a combination of the above if you recharacterized any of both conversions.