Inservice ER - rollover to Roth?

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Topic Author
runnergirl
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Inservice ER - rollover to Roth?

Post by runnergirl »

I recently discovered that my 401-K allows something called an "inservice ER". Apparently I am able to rollover a portion of my 401-K balance (about 10%) to an IRA. I am in my mid-40's. I max out the 401-K and also make after-tax contributions (to the 51,000 max) that I subsequently rollover to a Roth IRA. Does anyone else have an option like this and is it a good idea to roll this money out to the Roth IRA as well? Am I even allowed to roll over to a Roth IRA when my income is above the Roth limits?
Alan S.
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Re: Inservice ER - rollover to Roth?

Post by Alan S. »

Your income is not a factor since 2010 when income limits for qualified Roth rollovers and conversions was eliminated.

Yes, it is very beneficial to roll as much of your after tax balance as you can to your Roth IRA, where your future gains will be potentially tax free instead of taxable. Several bogleheads have been doing this annually. But you should verify that only the after tax contributions to your pre tax account (and their earnings) are eligible for rollover, so you will not owe any taxes on anything but the earnings. If this will be your first such rollover, you might find that the allocated earnings on these contributions have accumulated for awhile, so you need to take that into consideration. Doing more frequent rollovers will prevent earnings from accumulating prior to the rollover.
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

I'd be interested in learning just what "Inservice ER" means.

We've have many discussions about rolling after-tax employee contributions (not the same as contributions to Roth 401k) to Roth IRA and several people here do that. Apparently you do that as well.

In your post, it appears you are talking about an option over and above simply rolling over the after-tax employee contributions (and their earnings). Where does that money (that you are considering rolling) come from? Your employer match comes to mind, but that money is all before tax, so rolling that over might not be such a great idea.
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Watty
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Re: Inservice ER - rollover to Roth?

Post by Watty »

retiredjg wrote:I'd be interested in learning just what "Inservice ER" means.
The term I am familiar with is " 401k in-service non-hardship withdrawal" in HR-speak and if you Google that you will find lots of information. Allowing that is not required and when it is often only allowed after the age of 59.5. I suppose that it might be possible to set up a plan that allowed it at an earlier age, but it would unusual.
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

Thanks for the suggestion for google. I did read several sources, but it didn't clear up everything for me.

One source seems to think people can roll their "regular" 401k assets (the $17,500 a year money) to IRA even before age 59.5. The other sources said only after 59.5 and that is how I remember it as well (age requirement imposed by law, not plan policy).

However, I might have just forgotten. That happens more and more each year. :D
Default User BR
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Re: Inservice ER - rollover to Roth?

Post by Default User BR »

At that age, employee elective deferrals or designated Roth contributions cannot be rolled over in-service. However, employER contributions could. As the OP is already rolling out after-tax contributions, I suspect that this "ER" is the employer contributions, assuming there are any. If so, then those would be taxable and I wouldn't roll them into a Roth.


Brian
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

Default User BR wrote:At that age, employee elective deferrals or designated Roth contributions cannot be rolled over in-service.
That's what I thought too.

How do you interpret this article?

  • As a result of the Tax Increase Prevention Reconciliation Act (TIPRA), tax laws now permit in-service non-hardship withdrawals from 401(k), 403(b) and 457 plans to traditional IRAs and Roth IRAs before age 59½. Of course, the employee must be eligible to take a distribution from the plan, and the funds have to be eligible for a direct IRA rollover.1


I think they are talking about elective deferrals. Am I missing something or is it just wrong?
Default User BR
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Re: Inservice ER - rollover to Roth?

Post by Default User BR »

retiredjg wrote:As a result of the Tax Increase Prevention Reconciliation Act (TIPRA), tax laws now permit in-service non-hardship withdrawals from 401(k), 403(b) and 457 plans to traditional IRAs and Roth IRAs before age 59½. Of course, the employee must be eligible to take a distribution from the plan, and the funds have to be eligible for a direct IRA rollover.
I think they are talking about elective deferrals. Am I missing something or is it just wrong?
Note what I highlighted. The article was rather vague, but nowhere did it say that employee elective deferrals or designated Roth contributions could be taken out. Note that TIPRA was signed into law in 2006. That's what gave us the back-door Roth. It's nothing new.


Brian
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

Default User BR wrote:
retiredjg wrote:As a result of the Tax Increase Prevention Reconciliation Act (TIPRA), tax laws now permit in-service non-hardship withdrawals from 401(k), 403(b) and 457 plans to traditional IRAs and Roth IRAs before age 59½. Of course, the employee must be eligible to take a distribution from the plan, and the funds have to be eligible for a direct IRA rollover.
I think they are talking about elective deferrals. Am I missing something or is it just wrong?
Note what I highlighted. The article was rather vague, but nowhere did it say that employee elective deferrals or designated Roth contributions could be taken out. Note that TIPRA was signed into law in 2006. That's what gave us the back-door Roth. It's nothing new.
Allow me to highlight something different. This implies that something can now be withdrawn that could not be withdrawn before. I think (don't know for sure, so maybe this is where I'm wrong) that after-tax employee contributions and employer contributions could be withdrawn before TIPRA. So what is the new thing that can be withdrawn if not elective deferrals (traditional and/or Roth)?

Again, I think you are right - I don't think elective deferrals can move prior to age 59.5 (or disability). But I thought this article seemed to imply differently and that might explain what the original poster was talking about. Guess we'll just have to wait and see what money the OP is talking about.
Topic Author
runnergirl
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Re: Inservice ER - rollover to Roth?

Post by runnergirl »

Thanks for helping to clarify this. I already roll out all my after tax contributions to a Roth so I realize now that any amounts that I am allowed to withdraw for the Inservice ER (I'm guessing part of the employer contributions) will have to be taxed. I might as well leave them in the account in that case. The options aren't too bad.
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

Any idea what "ER" means?
Default User BR
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Re: Inservice ER - rollover to Roth?

Post by Default User BR »

retiredjg wrote:Again, I think you are right - I don't think elective deferrals can move prior to age 59.5 (or disability). But I thought this article seemed to imply differently and that might explain what the original poster was talking about. Guess we'll just have to wait and see what money the OP is talking about.
I think the article was either poorly written or meant to be misleading. But rather than worry about such sources of information, one can always check the IRS publications.
401(k) Resource Guide - Plan Sponsors - General Distribution Rules

Generally, distributions of elective deferrals cannot be made until one of the following occurs:

The participant dies, becomes disabled, or otherwise has a severance from employment.
The plan terminates and no successor defined contribution plan is established or maintained by the employer.
The participant reaches age 59½ or incurs a financial hardship.
http://www.irs.gov/Retirement-Plans/Pla ... tion-Rules


Brian
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

Thank you, Siri. :D

(Funny thing - in my google search, not one IRS source popped up to even look at. They were all financial services businesses. :shock: Hmmmm. Wonder why?)
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tarnation
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Re: Inservice ER - rollover to Roth?

Post by tarnation »

Default User BR wrote:
retiredjg wrote:As a result of the Tax Increase Prevention Reconciliation Act (TIPRA), tax laws now permit in-service non-hardship withdrawals from 401(k), 403(b) and 457 plans to traditional IRAs and Roth IRAs before age 59½. Of course, the employee must be eligible to take a distribution from the plan, and the funds have to be eligible for a direct IRA rollover.
I think they are talking about elective deferrals. Am I missing something or is it just wrong?
Note what I highlighted. The article was rather vague, but nowhere did it say that employee elective deferrals or designated Roth contributions could be taken out. Note that TIPRA was signed into law in 2006. That's what gave us the back-door Roth. It's nothing new.


Brian
Not
https://institutional.vanguard.com/VGAp ... alCliffLaw

Code: Select all

There are a number of details plan sponsors and participants will need to consider. For example, under the new law, any form of DC assets—participant contributions, employer contributions, or profit-sharing money—will be eligible for conversion, said Wendy Tyson, an attorney and senior ERISA consultant in SRC.
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BrandonBogle
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Re: Inservice ER - rollover to Roth?

Post by BrandonBogle »

My 401k allows me rollover my pre-tax employER profit sharing (discretionary deposit) and employER match. I am not sure what the Op's ER stands for, but I imagine it regerences any type of employer contribution similar as oppose to employEE matching. Google searching finds a number of other documents that use the EE and ER abbreviations and context there would indicate employEE and employER, respectively.
Default User BR
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Re: Inservice ER - rollover to Roth?

Post by Default User BR »

tarnation wrote:Not
https://institutional.vanguard.com/VGAp ... alCliffLaw

Code: Select all

There are a number of details plan sponsors and participants will need to consider. For example, under the new law, any form of DC assets—participant contributions, employer contributions, or profit-sharing money—will be eligible for conversion, said Wendy Tyson, an attorney and senior ERISA consultant in SRC.
Right. That's in-plan Roth conversion, not rollover.


Brian
Default User BR
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Re: Inservice ER - rollover to Roth?

Post by Default User BR »

BrandonBogle wrote:My 401k allows me rollover my pre-tax employER profit sharing (discretionary deposit) and employER match.
You have to be wary though. MyMegaCorp allows it as well, with the slight stipulation that they will suspend matching for six months. Ouch.


Brian
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

BrandonBogle wrote:My 401k allows me rollover my pre-tax employER profit sharing (discretionary deposit) and employER match. I am not sure what the Op's ER stands for, but I imagine it regerences any type of employer contribution similar as oppose to employEE matching. Google searching finds a number of other documents that use the EE and ER abbreviations and context there would indicate employEE and employER, respectively.
That's as good a guess as any. :D . I'm thinking "eligible rollover" or "eligible for rollover". In this poster's case, I think it may be the employER contributions since there are not many other things it could be.
Angst
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Re: Inservice ER - rollover to Roth?

Post by Angst »

"early rollover"? "emergency rollover"?
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Epsilon Delta
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Re: Inservice ER - rollover to Roth?

Post by Epsilon Delta »

retiredjg wrote:Thank you, Siri. :D

(Funny thing - in my google search, not one IRS source popped up to even look at. They were all financial services businesses. :shock: Hmmmm. Wonder why?)
Because you did not include "site:.gov" as one of your search terms? :wink:
retiredjg
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Re: Inservice ER - rollover to Roth?

Post by retiredjg »

Epsilon Delta wrote:Because you did not include "site:.gov" as one of your search terms? :wink:
Correct! I don't usually add that, but IRS pubs often come up anyway. This time, it was all people who want business!
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