Indirect 401K to Roth Conversions
I plan on completing an in service After Tax 401K to TIRA and Roth indirect conversion.
First I request my company 401K to pay the distribution to me.
I will then deposit the pre-tax portion into a TIRA. The additional 20% that was withheld must be provided by me.
Finally I will deposit the after tax portion into a Roth IRA.
Can I take the check from my 401K distribution directly to Fidelity or should I cash it first? Is it one transaction? Are there any other issues in doing this type of conversion?
Permalink Submitted by Alan Spross on Mon, 2010-12-06 21:47
If you get separate checks, one for the pre tax balance and the other for the after tax balance, the pre tax check will be short 20% due to withholding, but check with Fidelity if you can endorse it over to them while adding your own check for the 20% withheld. The after tax check could then be endorsed over to your Roth custodian. But you can also deposit both of them in your checking account and then cut a single check for each type of IRA rollover if you need to. But check if there are any holds put on these funds before you write checks on that balance.
Permalink Submitted by Matthew Frederick on Fri, 2010-12-10 20:48
If I rollover my entire 401(k) to my TIRA which includes some after tax basis (post 86) and then subsequently rollover all pre-tax amounts in that TIRA (from this rollover + previous rollovers) to my new company 401(k) plan (which allows) and leave behind only my after-tax basis amount, can I subsequently convert only that value to my Roth and complete the cycle? Since my current plan does not allow for rollovers containing any non taxable amounts, this would appear to isolate my after-tax basis which could then be converted to my Roth IRA and be free from prorated taxation. Any holes in this strategy?
Permalink Submitted by Alan Spross on Fri, 2010-12-10 21:06
The strategy should work fine as long as your current employer plan will accept IRA rollovers including IRAs which are not rollover IRAs. Plans are NOT allowed to accept any after tax amounts and many of them are afraid of acquiring them since it will cause major problems for the plan. So as long as you can transfer your entire pre tax IRA balance into a qualified plan, you can convert what is left tax free.
Note that no matter how many different IRA accounts you have, dollars you transfer to the employer plan are deemed to first come from your pre tax amounts. It may be easier if you can isolate that pre tax balance into one IRA account so that the plan only has to deal with accepting one IRA account.