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- Posts: 246
- Joined: Sat Jan 31, 2015 2:51 pm
Is there a difference between an Ater Tax 401k in-service withdrawal and distribution (for purposes of a Mega Backdoor Roth)? Are they different words for the same thing? Can both be done through a direct trustee transfer or through a 60 day rollover? Do they both require the 20% withholding, unless done through a direct trustee transfer?
I think they are the same.
A Google search returns:
http://www.marcumllp.com/insights-news/ ... 01-k-plans
Rollover of non-Roth funds
If your in-service withdrawal qualifies as an "eligible rollover distribution," you can roll over all or part of the withdrawal tax free to a traditional IRA or to another employer's plan that accepts rollovers. In general, most in-service withdrawals qualify as eligible rollover distributions except for hardship withdrawals and required minimum distributions after age 70½. If your withdrawal qualifies as an eligible rollover distribution, your plan administrator will give you a notice (a "402(f) notice") explaining the rollover rules, the withholding rules, and other related tax issues. (Your plan administrator will withhold 20% of the taxable portion of your eligible rollover distribution for federal income tax purposes if you don't directly roll the funds over to another plan or IRA.)
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- Joined: Tue Jun 10, 2014 1:14 am
Same thing. The key in that passage is the "eligible rollover" part. Not all distributions are.
You always want to do a direct rollover. Note that this might involve a check, but it would be made out to the new custodian. No withholding in that case. In any case, the withholding is only on the taxable amount, which should be small.
- Posts: 11915
- Joined: Fri Mar 02, 2007 2:39 pm
There are only two types of transactions in retirement accounts, contributions and distributions. Withdrawals, transfers and rollovers (except for rollover contributions) are all distributions. A withdrawal is where you individually receive the distribution.
As has already been pointed it is always better to do a direct rollover. An indirect rollover is a term for a withdrawal followed by a 60-day rollover. Also, a withdrawal of pre-tax balances is subject to a 20% withholding that must be made up so you can rollover the entire amount. There is seldom a good reason to suffer the 20% withholding and take the risk that you don't meet the 60 day window of an indirect rollover.
There are no 401k account transfers, only rollovers. It is IRAs and HSAs that can have trustee -> trustee transfers.