IRA rollover mixed pre/post tax question

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foursix
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Joined: Wed Dec 24, 2014 3:45 pm

IRA rollover mixed pre/post tax question

Post by foursix » Mon Aug 13, 2018 3:04 pm

I'm helping a relative out with her investments. She earns around $200k/yr in her first year out of graduate school. I'd like get her started with annual backdoor Roth IRA contributions.

She has a small traditional IRA opened last year when she was mostly under the income deduction limitations. $5370 of the $5500 contribution was deductible...now worth $5800. She's now planning on rolling that IRA into her company sponsored 401k but there's the question of how to treat the $130 after tax contribution. Can that just be converted into a Roth and the rest rolled into the IRA?

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

Re: IRA rollover mixed pre/post tax question

Post by Spirit Rider » Mon Aug 13, 2018 3:23 pm

A person can only rollover pre-tax IRA balances into a 401k. Once she has determined that her 401k plan will accept IRA rollovers. She should rollover all pre-tax balances in all traditional, SEP and SIMPLE IRA accounts to the 401k.

The pre-tax balance with be the total balance - $130. Once she has confirmed the pre-tax rollover has completed. She should do a Roth conversion of the remaining balance ($130 + any minimal earmings) to a Roth IRA.

Alternately, she can make a $5500 2018 traditional IRA contribution after confirming the completion of the rollover. Then she can do a Roth conversion of the remaining balance of $130 + $5500 + any minimal earmings. In both cases there will be little to no tax liability.

She will want to fill out Form 8606 correctly to report this. Then she will be all set to repeat for each subsequent year.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: IRA rollover mixed pre/post tax question

Post by retiredjg » Mon Aug 13, 2018 3:34 pm

She must also have the Form 8606 for the year of non-deductible contribution - apparently 2017? If she did not do that form earlier this year, she can do it now and send it (alone) to the IRS. Apparently they accept these forms late, but do not send a notification that they got it.

foursix
Posts: 32
Joined: Wed Dec 24, 2014 3:45 pm

Re: IRA rollover mixed pre/post tax question

Post by foursix » Mon Aug 13, 2018 3:55 pm

Thanks,

Direct roll-over's aren't required right? I'm assuming it's OK to take a distribution of the entire amount and use the 60 day grace period to do the two separate contributions?

Turbotax correctly filed the 8806 showing the 130 after tax

retiredjg
Posts: 34161
Joined: Thu Jan 10, 2008 12:56 pm

Re: IRA rollover mixed pre/post tax question

Post by retiredjg » Mon Aug 13, 2018 4:09 pm

I don't know for sure, but I'd be surprised if the 401k would accept a check from you unless it is made out to them from the IRA company. In other words, I don't think a 60 day rollover works going that direction.

Spirit Rider should know for sure.....and the answer is.....?

Spirit Rider
Posts: 8883
Joined: Fri Mar 02, 2007 2:39 pm

Re: IRA rollover mixed pre/post tax question

Post by Spirit Rider » Mon Aug 13, 2018 6:11 pm

You should always do direct rollovers even if the rollover such as this one is not subject to the one IRA rollover/12 month period rule. Regardless if the 401k plan will accept a check from you personally.

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