Will Pension rollover to 401k impact contribution limits?

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PhillyPhan
Posts: 23
Joined: Wed Nov 28, 2012 9:35 am

Will Pension rollover to 401k impact contribution limits?

Post by PhillyPhan » Mon Jul 21, 2014 8:33 pm

Looking for guidance on which route I should take to rollover a 6,500 lump sum pension from a previous employer

This is a qualified plan pension that is eligible for rollover penalty and tax free if I go the traditional 401k route.

Two questions...

Does it make more financial sense to go this route versus a Roth rollover that would incur a 25% tax hit?

Also will this rollover impact my 2014 contribution limits if I decide to place it in either a Roth or 401k?

Thanks!!

Alan S.
Posts: 6940
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Will Pension rollover to 401k impact contribution limits

Post by Alan S. » Mon Jul 21, 2014 8:49 pm

Rollover contributions do not affect your regular contribution limits. I assume you meant to roll it either to a TIRA or Roth IRA, not to a current 401k plan although that is also an option if your current plan will accept rollovers from other plans.

The decision on the type of plan to roll this to is the same as whether you should convert an IRA to a Roth or not. If the 25% you will pay is higher than what you expect your rate in retirement to be, you should not roll it to a Roth IRA. If the rate is lower, then it should go to the Roth and if the comparison is a toss up you could go either way depending on a lot of other variables that are too lengthy to go into here.

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