Transferring a traditional ira into a rollover ira
It used to be that you would roll an old 401k into a Rollover IRA so that someday you could then transfer the Rollover IRA into a 401k. However, the Rollover IRA had to stay “pure”, meaning that if you made additional contributions into the Rollover IRA, you could no longer move the Rollover IRA into a future 401k. Is this rule still true? A client has a Rollover IRA. If he transfers a small Traditional IRA into his Rollover IRA, is he then precluded from someday moving his Rollover IRA into a 401k?
Permalink Submitted by Alan Spross on Thu, 2012-11-01 20:32
No, the formal limitation of rollovers into qualified plans to conduit IRAs ended in 2002. Since then any IRA account can be rolled into a non IRA plan that will accept it, but only up to the pre tax amount of the IRA.
That said, there are still some employer plans that will not accept rollovers from any IRA accounts that are not rollover or conduit IRA accounts as reflected in the title “rollover”. They feel that they are less likely to receive non deductible IRA contributions by maintaining that restriction.
Not knowing how plan rollover rules may change in the future, it is safer to continue to keep rollover IRAs separate. In states that do not protect IRAs fully from creditors, it may also be better to keep rollover IRAs separate because creditor protection has no dollar limit under the federal bankruptcy Act for rollover IRAs. Non rollover IRAs are protected up to an inflation adjusted limit of 1 million.