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This is a fairly detailed question for which I would appreciate a detailed
answer.
I have money in a 401(k) from a former employer. Some of this money is
pre-tax; some is post-tax.
I want to roll this 401(k) into an IRA at another financial institution. I
expect my modified adjusted gross income for the year to be less than $100K.
If I had done the rollover last year, I would have been able to put the
pre-tax part of the 401(k) into a traditional IRA, and would have had two
options with the after-tax part:
1) Put it in the traditional IRA also, along with my other IRA funds; or
2) Take it in cash.
Either way, there would be no immediate tax consequences. However, if I
were to take option (1), I would no longer have the option of withdrawing
any of this money later unless I were also to withdraw a proportional amount
of before-tax money and pay taxes on it (and following all the other IRA
distribution rules, including early-withdrawal penalties as I am not yet at
age 59.5).
When I spoke to the rollover specialist at the financial institution that
holds my IRA (the destination for this money), he told me that the rules had
changed for 2008, and that I had a third option:
3) Put the pre-tax portion of the 401(k) in a traditional IRA and the
after-tax portion in a Roth IRA.
This option surprised me, as neither my wife nor I had found it when we were
researching this issue. Nevertheless, the financial-institution guy was
adamant. So I called the IRS.
I reached a customer-service representative at the IRS who told me that the
financial-institution guy was mistaken -- that indeed I could roll a 401(k)
into a Roth IRA, but I would have to pay taxes on the entire before-tax part
of the rollover. I responded that he had said that this was a rule change
for 2008, and when I looked at the IRS publications, they were quite vague
about the 2008 rules.
She put me on hold for a long time, and when she finally came back on the
line, she told me that I was right, the financial-institution guy was right,
and she had been mistaken. When I asked her where I could find official
confirmation of this new policy, she said that the new forms hadn't been
printed yet, but the new rule was a consequence of the ability to roll from
a 401(k) directly to a Roth IRA.
I could find nothing in the IRS publications that hint of this change. I
did find things in publication 590 that said that for 2008 one can roll a
401(k) into a Roth IRA, but that doing so is treated as if it were first
rolled into a traditional IRA and thence to a Roth IRA -- which I think
would be a taxable event.
So my question is: Can anyone point me at an official source online that
describes this 2008 rules change? If the financial-institution guy is
correct about the change, this is a Very Big Deal for anyone with after-tax
contributions in a 401(k).
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>
> So my question is: Can anyone point me at an official source online that
> describes this 2008 rules change? If the financial-institution guy is
> correct about the change, this is a Very Big Deal for anyone with after-tax
> contributions in a 401(k).
>
I have been looking for similar rollover/conversion guidelines for
2008.
I decided to do the conversion (it is dated either 10/9 or 10/10
depending on when paperwork is received- I sent it Tuesday). My logic
was that not sure of the 2008 AGI limits or my 2008 taxable income,
but I can recharactorize the conversion back to a rollover IRA between
now and April 15 without any tax consequence.
I think you will have to wait to much closer to Dec 31 to see the 2008
IRS pubs.
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>> So my question is: Can anyone point me at an official source online that
>> describes this 2008 rules change?
Here is what the IRS says:
Rollovers from other retirement plans. Prior to 2008, you can only
rollover (convert) amounts from either a traditional, SEP, or SIMPLE IRA
into a Roth IRA. After 2007, you can rollover amounts from the following
plans into a Roth IRA.
a.. A qualified pension, profit-sharing or stock bonus plan (including a
401(k) plan),
b.. An annuity plan,
c.. A tax-sheltered annuity plan (section 403(b) plan),
d.. A deferred compensation plan of a state or local government (section
457 plan), or
e.. An IRA.
Any amount rolled over is subject to the same rules for converting a
traditional IRA into a Roth IRA. See Converting From Any Traditional IRA
Into a Roth IRA in chapter 1. Also, the rollover contribution must meet the
rollover requirements that apply to the specific type of retirement plan.
NOTE: the last part of the above quote says it is subject to the same rules
for converting a traditional IRA into a Roth. This means there is a
monitary limit of $5000 or $6000, so you would not be able to move $50,000
into a Roth IRA. You could take it out, and if you have earned income in
future years, you could increase the Roth IRA with new contributions.
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"JoeSixPack" <s...@a...com> wrote in message
news:MCxIk.5245$YU2.200@nlpi066.nbdc.sbc.com...
> Any amount rolled over is subject to the same rules for converting a
> traditional IRA into a Roth IRA. See Converting From Any Traditional IRA
> Into a Roth IRA in chapter 1. Also, the rollover contribution must meet
> the rollover requirements that apply to the specific type of retirement
> plan.
> NOTE: the last part of the above quote says it is subject to the same
> rules for converting a traditional IRA into a Roth. This means there is a
> monitary limit of $5000 or $6000, so you would not be able to move $50,000
> into a Roth IRA. You could take it out, and if you have earned income in
> future years, you could increase the Roth IRA with new contributions.
This claim is incorrect on at least two counts:
1) There is no $5,000 or $6,000 limit on converting from a traditional
IRA into a Roth.
2) I've already seen this paragraph, and I mentioned it to the IRS agent
with whom I spoke. She said that it doesn't apply in this case, but was not
able to explain why.
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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