Contributory IRA rollover into 401K

Submitted by Christopher Combs on Fri, 2015-10-02 18:05

Dear Alan et al,

I have a client who has a small pre-tax IRA ($5K)- he wants to consolidate this by rolling it into his current 401(k) plan.

When we called Fidelity, the representative told us that this could not be done because the account wasn’t a “rollover IRA.” We confirmed that the contributions were pre-tax.

On a subsequent call to Vanguard, the representative had no problem with this same concept- rolling a contributory pre-tax IRA into a 401(k) plan so I feel like we’re being told two different things.

I thought that, as long as the 401(k) plan accepted incoming rollovers, it didn’t matter whether it was a contributory IRA or a rollover IRA, as long as the funds were pre-tax.

Am I wrong?

Thanks in advance,

Chris



Submitted by Alan - IRA critic on Fri, 2015-10-02 18:50

  • Chris, there are still quite a few 401k plans that will not accept rollovers from contributary IRAs but will accept from rollover IRAs. The reason is fear that the 401k plan will end up with after tax IRA money because the taxpayer may not have been able to deduct the contribution. Conversely, they think that rollover IRAs are much less likely to contain after tax money, but since 2001 this is not necessarily true. The plan calls the shots on this and Fidelity and VG are servicing different plans.
  • Last year, an effort was made to facilitate these rollovers and relax penalties on plans that accepted after tax money due to taxpayer error. See the Holdings section of this IRS Notice:    http://www.irs.gov/irb/2014-17_IRB/ar05.html

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