Rollover Pension Plan to IRA or Roth IRA

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zrzhu111
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Rollover Pension Plan to IRA or Roth IRA

Post by zrzhu111 » Thu Mar 16, 2017 10:47 am

I have a small balance ($3500) of pension/retirment plan from my previous employer. Should I roll it over to IRA or Roth IRA? Thanks.

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flamesabers
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by flamesabers » Thu Mar 16, 2017 11:06 am

zrzhu111 wrote:I have a small balance ($3500) of pension/retirment plan from my previous employer. Should I roll it over to IRA or Roth IRA? Thanks.
I think it depends on whether your retirement plan is traditional or Roth. If it's traditional, roll it over into a traditional IRA. If it's Roth, roll it over into a Roth IRA. If you're going to be in a low tax bracket this year, you may want to convert the traditional plan to a Roth IRA to minimize tax liabilities in the future.

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zrzhu111
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by zrzhu111 » Thu Mar 16, 2017 1:12 pm

flamesabers wrote:
zrzhu111 wrote:I have a small balance ($3500) of pension/retirment plan from my previous employer. Should I roll it over to IRA or Roth IRA? Thanks.
I think it depends on whether your retirement plan is traditional or Roth. If it's traditional, roll it over into a traditional IRA. If it's Roth, roll it over into a Roth IRA. If you're going to be in a low tax bracket this year, you may want to convert the traditional plan to a Roth IRA to minimize tax liabilities in the future.
It's traditional as far as I know because the balance was contributed by the employer and I don't think I paid tax on it yet.

If I want it to roll it over to Roth, besides the income tax I need to pay. Any additional tax or penalty I need to consider?

Thanks

TOJ
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by TOJ » Thu Mar 16, 2017 1:16 pm

I would roll it over to a TIRA and then convert to RIRA after (if that is something you're wanting to do). I'm unsure if you can do it in one fell swoop, but I would not try.

To Roth or not is your real question.

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flamesabers
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by flamesabers » Thu Mar 16, 2017 1:25 pm

zrzhu111 wrote:
flamesabers wrote:
zrzhu111 wrote:I have a small balance ($3500) of pension/retirment plan from my previous employer. Should I roll it over to IRA or Roth IRA? Thanks.
I think it depends on whether your retirement plan is traditional or Roth. If it's traditional, roll it over into a traditional IRA. If it's Roth, roll it over into a Roth IRA. If you're going to be in a low tax bracket this year, you may want to convert the traditional plan to a Roth IRA to minimize tax liabilities in the future.
It's traditional as far as I know because the balance was contributed by the employer and I don't think I paid tax on it yet.

If I want it to roll it over to Roth, besides the income tax I need to pay. Any additional tax or penalty I need to consider?

Thanks
If you do the conversion, it's just the income tax you need to pay.
A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA. The conversion is reported on Form 8606, Nondeductible IRAs. See Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), for more information.
https://www.irs.gov/retirement-plans/re ... onversions

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zrzhu111
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by zrzhu111 » Sat Mar 18, 2017 11:25 am

Thanks, all. I plan to roll it over to Vanguard Roth IRA.

What kind of forms should I expect from both the old admin for my pension plan and Vanguard? I know I will get 1099 R for the distribution. Will I get anything from Vanguard for the rollover?

Alan S.
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by Alan S. » Sat Mar 18, 2017 10:28 pm

zrzhu111 wrote:Thanks, all. I plan to roll it over to Vanguard Roth IRA.

What kind of forms should I expect from both the old admin for my pension plan and Vanguard? I know I will get 1099 R for the distribution. Will I get anything from Vanguard for the rollover?
The plan will send you a 1099R with the taxable amount in Box 2a. You report this directly on lines 16a and 16b of Form 1040. You do NOT need to file Form 8606. Vanguard will issue Form 5498 in May of the year following the rollover showing a Roth IRA rollover contribution. You do not file this form, just keep it with your records.

Note that if your Roth rollover loses money or you simply decide you should have rolled it to a TIRA instead, you can recharacterize the rollover to your TIRA just as you could recharacterize a Roth conversion. That would erase the tax bill. The rollover net of earnings or loss would be transferred to a TIRA, NOT back to the plan it came from.

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zrzhu111
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by zrzhu111 » Sun Mar 19, 2017 9:49 am

Alan S. wrote:
zrzhu111 wrote:Thanks, all. I plan to roll it over to Vanguard Roth IRA.

What kind of forms should I expect from both the old admin for my pension plan and Vanguard? I know I will get 1099 R for the distribution. Will I get anything from Vanguard for the rollover?
The plan will send you a 1099R with the taxable amount in Box 2a. You report this directly on lines 16a and 16b of Form 1040. You do NOT need to file Form 8606. Vanguard will issue Form 5498 in May of the year following the rollover showing a Roth IRA rollover contribution. You do not file this form, just keep it with your records.

Note that if your Roth rollover loses money or you simply decide you should have rolled it to a TIRA instead, you can recharacterize the rollover to your TIRA just as you could recharacterize a Roth conversion. That would erase the tax bill. The rollover net of earnings or loss would be transferred to a TIRA, NOT back to the plan it came from.
So if i have loss in the pension plan when I roll it over to Roth, I can offset the loss with my investment gain, correct?

Topic Author
zrzhu111
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by zrzhu111 » Tue Mar 21, 2017 10:21 am

zrzhu111 wrote:
Alan S. wrote:
zrzhu111 wrote:Thanks, all. I plan to roll it over to Vanguard Roth IRA.

What kind of forms should I expect from both the old admin for my pension plan and Vanguard? I know I will get 1099 R for the distribution. Will I get anything from Vanguard for the rollover?
The plan will send you a 1099R with the taxable amount in Box 2a. You report this directly on lines 16a and 16b of Form 1040. You do NOT need to file Form 8606. Vanguard will issue Form 5498 in May of the year following the rollover showing a Roth IRA rollover contribution. You do not file this form, just keep it with your records.

Note that if your Roth rollover loses money or you simply decide you should have rolled it to a TIRA instead, you can recharacterize the rollover to your TIRA just as you could recharacterize a Roth conversion. That would erase the tax bill. The rollover net of earnings or loss would be transferred to a TIRA, NOT back to the plan it came from.
So if i have loss in the pension plan when I roll it over to Roth, I can offset the loss with my investment gain, correct?
Can anyone please confirm? Thanks.

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zrzhu111
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Re: Rollover Pension Plan to IRA or Roth IRA

Post by zrzhu111 » Tue Mar 28, 2017 9:39 am

zrzhu111 wrote:
Alan S. wrote:
zrzhu111 wrote:Thanks, all. I plan to roll it over to Vanguard Roth IRA.

What kind of forms should I expect from both the old admin for my pension plan and Vanguard? I know I will get 1099 R for the distribution. Will I get anything from Vanguard for the rollover?
The plan will send you a 1099R with the taxable amount in Box 2a. You report this directly on lines 16a and 16b of Form 1040. You do NOT need to file Form 8606. Vanguard will issue Form 5498 in May of the year following the rollover showing a Roth IRA rollover contribution. You do not file this form, just keep it with your records.

Note that if your Roth rollover loses money or you simply decide you should have rolled it to a TIRA instead, you can recharacterize the rollover to your TIRA just as you could recharacterize a Roth conversion. That would erase the tax bill. The rollover net of earnings or loss would be transferred to a TIRA, NOT back to the plan it came from.
So if i have loss in the pension plan when I roll it over to Roth, I can offset the loss with my investment gain, correct?
I don't think I will be able to deduct any potential loss. Let's say basis of my investment is $3500. On the day of the rollover to RIRA, the FMV is $3400. I would pay income tax on $3400, not $3500. Thoughts?

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