Roth 401k Rollover
Hello,
Client has an old 401k Plan worth $50k – of which $650 or so represents Roth 401k contributions.
The plan is to roll over the pre-tax contributions into an existing Rollover IRA.
With respect to the Roth 401k contributions, since the client already has a Roth IRA (from years ago – not being funded and worth roughly $45k), in light of the $ totals we would just roll-over the Roth 401k contributions into the Roth IRA.
Client’s total Rollover IRAs (all pre-tax) are close to $700k.
I know it’s typically preferable to keep contributions segregated from rolled-over monies, principally for creditor protection reasons if ever applicable. However, given the relatively small amount in the Roth 401k, as well as Roth IRA, presumably there is no reason to need to set up a new Rollover Roth IRA for this.
Please advise. Thanks!
Jason
Permalink Submitted by Alan - IRA critic on Mon, 2017-02-20 18:31
You are correct. $650 is way too small to maintain a separate Roth IRA to hold it. It should be rolled into the existing Roth IRA. His Roth IRA basis from regular contributions will then be increased by the amount of his Roth 401k contributions, which are likely either more or less than $650. Ordering the direct rollover should be carefully done and both IRAs checked right afterward to make sure the pre tax 401k money went to the TIRA and the 650 went to the Roth. Have heard of a couple cases where these amounts were transposed to the wrong type IRA.