Roll in to QRP from IRA
Assume an IRA is $100k with $30k of basis. Want to rollover $70k pretax money to company 401(K) and then convert $30k aftertax to Roth. The $100k is invested in 30 individual stocks. Is it possible to do all of this without having to sell all of the stocks and incurring commissions?
Keith
Permalink Submitted by mk foss on Sun, 2012-09-02 23:38
Will the 401(k) plan accept IRA rollovers?
If yes, will the 401(k) accept “in-kind” rollovers or will it only accept cash?
The proposed transaction can work without incurring commissions if the underlying documents allow it.
Permalink Submitted by Keith Sechler on Sun, 2012-09-02 23:49
Yes, it will accept in-kind rollovers. My questions is how do you transfer exactly the correct dollars to the QRP if you are doing an in-kind rollover and want to leave exactly the correct number of dollars in the IRA. Maybe raise cash equal to the $ of basis and then do in-kind transfer of remainder of IRA to QRP?
Permalink Submitted by Alan Spross on Mon, 2012-09-03 00:39
If you are totally sure that your plan will accept not only IRA rollovers, but IRA rollovers that are not from “rollover IRAs” and also in kind assets, then you could do the conversion first. After all, the critical requirements are first that you roll 30k or more to the Roth IRA and second that no basis goes to the 401k. To do that you could raise about 2k in cash and then specify which assets to convert to the Roth including enough cash to equal 30k. That provides enough cash to cover changes in asset values. The rollover of the balance to the 401k must be completed before year end.
Then you roll whatever is left to the 401k and you do not have to worry about changes in value before the distribution is made.
Permalink Submitted by Keith Sechler on Mon, 2012-09-03 00:56
Thanks for the help. I had not thought of doing it in that order. I guess you could do the Roth conversion over two days…stocks the first day and then enough cash the second day to exactly equal the basis.
Can you explain a little more about the rollover of a rollover IRA versus a regular IRA? I thought with the changes in the law a few years ago it doesn’t make a difference. Other than QRP document wording, is there something I need to look at?
Permalink Submitted by Alan Spross on Mon, 2012-09-03 01:16
Some employer plans are very fearful of receiving basis from IRA rollovers. This could result in costly corrective measures for the plan (or even disqualification in extreme cases) since plans are not allowed under any circumstances to acquire basis from IRA accounts. Even though rollover IRAs could conceivably also include after tax contributions from employer plans since 2001, current administrators figure that if they restrict IRA rollovers to rollover (aka conduit) IRAs, they have a much lower chance of acquiring basis and feel safer. Those plans will not accept IRA rollovers unless the title of the IRA includes “rollover”. That presents a benefit for trying to keep that wording on your rollover IRAs until you are sure that you will never want to roll them into an employer plan.
If you do the conversion first and the 401k rollover blows up, it’s not a disaster. It just means you would have to recharacterize your conversion if you did not want to pay taxes on 70% of your conversion.
Permalink Submitted by Keith Sechler on Mon, 2012-09-03 01:26
Thanks again