Is previous employer 401(k) good enough to "shield" from pro rata?

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paranoid
Posts: 1
Joined: Mon Sep 24, 2018 2:50 pm

Is previous employer 401(k) good enough to "shield" from pro rata?

Post by paranoid » Mon Sep 24, 2018 3:55 pm

Hi,

My last few places of employment were short term contracts (less than a year). One of which I qualified for the 401(k) plan managed by Fidelity, which I only put in a few pay period worth of contributions, before I left and went to the next contract. In the mean time, I do have a few rollover IRA from the years of full time employment scattered among various custodians such as Charles Schwab, and TD Ameritrade amounting to about $200K.

Between my spouse and me, we do have the nice problem of being "high income" and over the limit for Roth IRA. I'd like to contribute to a Traditional IRA this year, and do a backdoor conversion to Roth. After trying to understand how a backdoor works, it looks like I would have been slapped by the pro rata rule, because of all the Rollover IRAs I have.

Can I transfer all the Rollover IRA accounts to the Fidelity 401(k) to shield myself from this pro rata rule before attempting a backdoor? I do not work for that particular company anymore, but I have not done anything to the account since leaving. My current contract does not have a 401(k) plan for a contractor such as myself.

Thanks!

ExitStageLeft
Posts: 898
Joined: Sat Jan 20, 2018 4:02 pm

Re: Is previous employer 401(k) good enough to "shield" from pro rata?

Post by ExitStageLeft » Mon Sep 24, 2018 4:10 pm

Welcome to the forum! The IRS rules allow you to roll all your traditional IRAs into a qualified retirement plan such as a 401k. The only potential glitch is if the plan adminstrator does not accept rollovers from IRAs or limits it to current employees. Check with the plan and find out.

Alternatively, if you are a contract employee and receive 1099 forms instead of a W-2 then you likely qualify as a self-employed individual and can open up a solo 401k.

mhalley
Posts: 6063
Joined: Tue Nov 20, 2007 6:02 am

Re: Is previous employer 401(k) good enough to "shield" from pro rata?

Post by mhalley » Mon Sep 24, 2018 4:19 pm

In general, old 401k plans do not allow rollovers. An alternative if you are not a 1099 emplyoyee is to create a side gig (sell on eBay, drive for Uber) and create your 401k with that as your income.

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