Moving my rollover IRA from vanguard to my 401k - any gotchas?

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rasputin
Posts: 260
Joined: Tue Mar 29, 2011 6:40 pm

Moving my rollover IRA from vanguard to my 401k - any gotchas?

Post by rasputin » Thu Jan 16, 2020 11:27 am

I'd like to be able to do a backdoor roth IRA contribution. I have a 401k (with employer, duh) and a rollover IRA with vanguard. Its my understanding that I should move the rollover IRA assets into my 401k otherwise the rollover IRA assets figure into taxes due for backdoor roth.

I looked at the funds and fees for my 401k and it looks like there's only a fee for withdraw and the fund fees for the (many) vanguard funds appear to be the same vanguard changes. Conclusion - it looks like this makes sense.

Is there anything I might be missing?

HomeStretch
Posts: 3505
Joined: Thu Dec 27, 2018 3:06 pm

Re: Moving my rollover IRA from vanguard to my 401k - any gotchas?

Post by HomeStretch » Thu Jan 16, 2020 11:38 am

Check if your 401k plan accepts rollovers in. Sounds like the plan has good low-cost fund choices.

Only the pretax traditional IRA (tIRA) balance should be rolled over into the 401k. If your traditional IRA includes any basis, that should not be rolled over. Do the rollover well in advance of 12/31/20 in case of any delays as you want the pretax tIRA balance to be zero on 12/31/20 if you plan to do a backdoor Roth in 2020.

Complete the rollover into the 401k before doing step 2 (conversion) of the backdoor Roth. After the rollover in, likely pretax earnings will be posted to your tIRA. You can wait a month to see if such earnings are automatically sent in a 2nd rollover to the 401k. Or you can convert the pretax earnings to your Roth IRA. You will likely owe (a small amount of) taxes on any converted earnings.

Check the pretax tIRA balance to be sure it is zero on 12/31 in any year you do a conversion (step 2 of the backdoor Roth) in order to avoid pro-rated taxes.

carmonkie
Posts: 191
Joined: Fri Jun 29, 2018 4:31 pm

Re: Moving my rollover IRA from vanguard to my 401k - any gotchas?

Post by carmonkie » Thu Jan 16, 2020 11:47 am

Have you verified with your employer that the 401(k) can take rollovers? Some do some don't. You said rollover, so assume this was an older 401(k) and you left it alone and you never contributed to it while it was a rollover IRA? If you did contribute subject to the IRA limits, I don't think you can roll it back.

Do you have any other IRAs under your name besides that one. If you do, those would still trigger the pro-rata rule not just this rollover IRA.

lakpr
Posts: 3507
Joined: Fri Mar 18, 2011 9:59 am

Re: Moving my rollover IRA from vanguard to my 401k - any gotchas?

Post by lakpr » Thu Jan 16, 2020 2:22 pm

Note that the IRA custodian is obligated to issue a 1099-R for the amount of rollover, though a certain code on the form (I believe "H") would let the IRS know this to be a tax-free withdrawal. I did input the code in the TaxAct software when I reported the roll over, but two years later the IRS sent me a CP-2000 notices essentially saying "hey, you withdrew $104k from your traditional IRA, but did not pay taxes, and with penalties you owe us $54k ... "

I had to scramble to download the statement from the IRA custodian, and also the 401k custodian that within 60 days of check being disbursed from the IRA the 401k custodian got it and deposited it for the exact amount.

Caution: Download your statements and hang on to them for at least 3 years (IRS accepted my PDF downloads, so you can save soft copies). Take a picture of the check too, if/when it is made out to "401k Custodian FBO rasputin" and sent to you. You may likely need this to respond to IRS notice.

Once the documentation is sent, IRS closed the case and said "no worries, no tax due", but sure had I known this would happen, I'd been more prepared.

wildcat123
Posts: 16
Joined: Thu Oct 31, 2019 5:29 pm

Re: Moving my rollover IRA from vanguard to my 401k - any gotchas?

Post by wildcat123 » Thu Jan 16, 2020 3:18 pm

I went through something similar recently

viewtopic.php?f=1&t=293888&p=4870718

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