Halls of Shrewd'm / US Policy❤
No. of Recommendations: 1
I'm pretty sure this is all above board, but my Fidelity rep is unsure.
Here's the story: I had merged two SEP IRAs recently, leaving me with one SEP IRA, a solo 401(k), and a traditional IRA containing pre-tax (70%) and after-tax (30%) contributions. The 401(k) does allow incoming rollovers.
I want to rollover the SEP IRA and the pre-tax part of the traditional IRA to the solo 401(k), and the after-tax to a new Roth IRA, and not pay any income tax.
These IRS publications seem to allow it:
https://www.irs.gov/pub/irs-tege/rollover_chart.pd...https://www.irs.gov/retirement-plans/rollovers-of-...Though I am confused as to what I'd put on form 8606.
Anyone done something similar, or know if it can be done?
No. of Recommendations: 1
I want to rollover the SEP IRA and the pre-tax part of the traditional IRA to the solo 401(k), and the after-tax to a new Roth IRA, and not pay any income tax.
I can't talk to the SEP IRA, but you will have to pay tax on the TIRA rollover, based on the ratio of pre-tax and after tax funds...unless something has changed dramatically since we tried doing that ages ago and had to do a recharacterization when we realized we would owe taxes.
I'm sure someone much more qualified will respond, however.
IP
No. of Recommendations: 0
“I can't talk to the SEP IRA, but you will have to pay tax on the TIRA rollover, based on the ratio of pre-tax and after tax funds...unless something has changed dramatically since we tried doing that ages ago and had to do a recharacterization when we realized we would owe taxes.”
Well, the idea is that the pretax part plus all earnings is pushed to the 401k, which isn’t actually considered a rollover (I think), leaving exactly the after tax part. Then it’s just like doing a back-door Roth.
The Bogleheads say it can be done. My accountant thought it could be. It seems to me, from the IRS links posted upthread, that it can be. My Fidelity rep said it could, *before* I transferred all my retirement accounts to them (401k was already at Fidelity). Now he’s balking, lol.
No. of Recommendations: 1
Me: “Well, the idea is that the pretax part plus all earnings is pushed to the 401k, which isn’t actually considered a rollover (I think), leaving exactly the after tax part.”
Correction: it is a “rollover”, but it’s not subject to the one per year rule since it is going to a qualified plan, in this case a solo 401k.
No. of Recommendations: 6
I thought that the IRS says pre-tax and post-tax amount must be taken ratably, i.e. proportionately. That is certainly how withdrawals are handled.
The back office people at your broker will do what their lawyers & tax experts have deemed to be the right thing. Just like they carry over the basis on taxable stock transfers.
You, a member of the public, will never be able to talk to those people. The CS folks who take phone calls don't know how the handle these unusual things, so take whatever they say with a grain of salt.
No. of Recommendations: 0
I thought that the IRS says pre-tax and post-tax amount must be taken ratably, i.e. proportionately. That is certainly how withdrawals are handled.My Fidelity rep thinks so too, now.
Here's the IRS guidance from 2014:
https://www.irs.gov/retirement-plans/rollovers-of-...Many savers have made after-tax contributions to a 401(k) or other defined contribution retirement plan. If your account balance contains both pretax and after-tax amounts, any distribution will generally include a pro rata share of both.I've read the rest of it a few times and am still not seeing what the Bogleheads are seeing - that I could rollover the pretax to the 401k and after tax to a Roth, without paying tax.
I have gone ahead and rolled all my SEP IRAs to the 401k. When I have the income space I can roll the comingled IRA to a Roth, paying tax on the pre-tax portion. That seems safest.
No. of Recommendations: 1
Well, I just came across this:
https://www.irs.gov/pub/irs-pdf/p590a.pdfPage 21 top right:
Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA.
Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution couldn’t be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or don’t roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible.I read this as saying I can roll over the pre-tax part of the traditional IRA into my eligible retirement plan (401k), leaving only the after-tax basis, which can then be rolled over to a Roth with no tax due. Does that seem right?
No. of Recommendations: 1
Worth talking to a tax CPA (or aj485 on the current Fool board). This is why I avoided making after-tax contributions to an IRA or 401K.
I read it as,
Pre tax contributions of $100K - basis is $100K, current value of pre-tax investments is V, can roll over V (or just the $100K?)
after tax contributions of $50K - basis is $50K) - do we have to determine gain on the investments bought with the after-tax contribs??
FC
