IRA to 401K rollover + Backdoor IRA in same year

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Sourc3
Posts: 65
Joined: Wed Aug 05, 2015 4:45 pm

IRA to 401K rollover + Backdoor IRA in same year

Post by Sourc3 » Wed May 24, 2017 6:23 am

I had a previous 401K that was converted to an IRA after I left my job. Now that I am maxing out my 401K, I wanted to do a backdoor Roth IRA conversion but got to know about how my previously converted IRA would make that conversion taxable. Today, I learned that I can roll over my IRA to my current 401K.

Has anyone done IRA to 401K *and* a Backdoor Roth IRA conversion in the same year? I don't want to end up in a tax nightmare for 2017 :)

User avatar
House Blend
Posts: 4479
Joined: Fri May 04, 2007 1:02 pm

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by House Blend » Wed May 24, 2017 9:54 am

Yes (not me personally, but...) there are many threads about doing exactly this. The key is that you want the IRA to 401(k) rollover to be complete before the end of the current tax year.

See TFB's guide:
https://thefinancebuff.com/the-backdoor ... ow-to.html

TFB explicitly recommends doing the rollover first.

Spirit Rider
Posts: 8558
Joined: Fri Mar 02, 2007 2:39 pm

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by Spirit Rider » Wed May 24, 2017 10:33 am

All that is necessary for an effective backdoor Roth IRA contribution is for there to be little to no pre-tax balance in all of your IRA accounts (traditional, SEP and SIMPLE) on 12/31.

The order is not important, but doing the rollover first ensures that it has been successful.

User avatar
Just sayin...
Posts: 198
Joined: Tue Oct 09, 2007 10:12 am

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by Just sayin... » Wed May 24, 2017 11:44 am

I completed an IRA to 401k rollover in Dec 2010, then did a Backdoor Roth in Jan 2011 (and every year since). I sanity-checked it with a couple accountants, and it passed the IRS review (mini-audit in the same year for another, unrelated item). I'd use a tax-year separator for the two transactions...

topspin70
Posts: 16
Joined: Fri May 12, 2017 2:15 pm

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by topspin70 » Wed May 24, 2017 12:08 pm

I completed an IRA to 401k rollover in Dec 2010, then did a Backdoor Roth in Jan 2011 (and every year since). I sanity-checked it with a couple accountants, and it passed the IRS review (mini-audit in the same year for another, unrelated item). I'd use a tax-year separator for the two transactions...
What happens if you complete the IRA rollover to 401k and backdoor Roth IRA in the same year? How about a few months in between these two transactions.
I'm currently in the process of transferring my IRA (from previous 401K) to ETrade and then contemplating to backdoor roth my Traditional non deductible IRA.
Another issue is that I have my traditional IRA scattered in Fidelity and Vanguard. Do I need to put them in one brokerage before I do the conversion?

Thanks!!!!

Spirit Rider
Posts: 8558
Joined: Fri Mar 02, 2007 2:39 pm

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by Spirit Rider » Wed May 24, 2017 12:21 pm

All your pre-tax IRA balances are treated as one. Otherwise read my previous post. It is that straightforward.

Sourc3
Posts: 65
Joined: Wed Aug 05, 2015 4:45 pm

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by Sourc3 » Wed May 24, 2017 5:53 pm

Thank you for insightful replies! After reading these posts and thinking about it I've decided to get the rollover done with soon so I called Fidelity today. I learned that for this type of IRA to 401K roll-over, my current IRA administrator (Schwab) would need to cut me a check and then I would have to fill out my employer supplied rollover form along with this check and send it to Fidelity to complete the transfer.

Although the Fidelity representative repeatedly kept saying there are no tax implications, I am not 100% convinced that getting a check from Schwab would not be considered as "income". Has anyone dealt with this issue during their transfer? Thank you in advance.

jasonrecite25
Posts: 47
Joined: Tue Apr 11, 2017 1:16 pm

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by jasonrecite25 » Wed May 24, 2017 6:23 pm

Sourc3 wrote:Thank you for insightful replies! After reading these posts and thinking about it I've decided to get the rollover done with soon so I called Fidelity today. I learned that for this type of IRA to 401K roll-over, my current IRA administrator (Schwab) would need to cut me a check and then I would have to fill out my employer supplied rollover form along with this check and send it to Fidelity to complete the transfer.

Although the Fidelity representative repeatedly kept saying there are no tax implications, I am not 100% convinced that getting a check from Schwab would not be considered as "income". Has anyone dealt with this issue during their transfer? Thank you in advance.
Can you have Schwab cut the check to Fidelity? I am doing this right now and have a 401k with Fidelity. My current IRA brokerage house cut the check to "Fidelity for the benefit of My Name". Then I just send the check to Fidelity with the rollover form. If you don't do this, Fidelity will most likely ask you for a cashiers check so you will need to cash the Schwab check yourself and get a cashiers check issued.

Alan S.
Posts: 7710
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by Alan S. » Wed May 24, 2017 6:27 pm

Sourc3 wrote:Thank you for insightful replies! After reading these posts and thinking about it I've decided to get the rollover done with soon so I called Fidelity today. I learned that for this type of IRA to 401K roll-over, my current IRA administrator (Schwab) would need to cut me a check and then I would have to fill out my employer supplied rollover form along with this check and send it to Fidelity to complete the transfer.

Although the Fidelity representative repeatedly kept saying there are no tax implications, I am not 100% convinced that getting a check from Schwab would not be considered as "income". Has anyone dealt with this issue during their transfer? Thank you in advance.
There are two ways to do this rollover, a direct rollover with the check made out to "Fidelity FBO you" or a 60 day rollover with the check made out to you personally and then you either send your own check or endorse the received check over for deposit to your 401k plan. Either way, you must report the rollover on line 15 of Form 1040 and include an explanatory statement describing the rollover date and amount and destination plan. If you report it correctly per the 1099R you will receive, there will not be a taxable event.

A 60 day rollover to a 401k plan does NOT count against the one rollover rule for an IRA distribution if the check is made out to you personally. You said the check would be cut to you which means made out to you instead of a direct rollover check, so you would be doing a 60 day rollover to your 401k plan. When you request this check be sure to indicate that you are declining all tax withholding from the IRA distribution. The only remaining question here is whether the Fidelity form indicates a direct rollover check made out appropriately or a 60 day rollover check made out to you personally.

Sourc3
Posts: 65
Joined: Wed Aug 05, 2015 4:45 pm

Re: IRA to 401K rollover + Backdoor IRA in same year

Post by Sourc3 » Thu May 25, 2017 7:47 am

jasonrecite25 wrote:
Sourc3 wrote:Thank you for insightful replies! After reading these posts and thinking about it I've decided to get the rollover done with soon so I called Fidelity today. I learned that for this type of IRA to 401K roll-over, my current IRA administrator (Schwab) would need to cut me a check and then I would have to fill out my employer supplied rollover form along with this check and send it to Fidelity to complete the transfer.

Although the Fidelity representative repeatedly kept saying there are no tax implications, I am not 100% convinced that getting a check from Schwab would not be considered as "income". Has anyone dealt with this issue during their transfer? Thank you in advance.
Can you have Schwab cut the check to Fidelity? I am doing this right now and have a 401k with Fidelity. My current IRA brokerage house cut the check to "Fidelity for the benefit of My Name". Then I just send the check to Fidelity with the rollover form. If you don't do this, Fidelity will most likely ask you for a cashiers check so you will need to cash the Schwab check yourself and get a cashiers check issued.
Great tip. I will call Schwab today and ask about this. Thanks!

Post Reply