Author Topic: 401K rollover, before/after tax amts, conversions, and the pro-rata rule  (Read 1765 times)

catccc

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I have:
1) an old employer 401K with Vanguard, with both before tax and after tax contributions (was trying for mega backdoor roth, then left company a couple months later)
2) a Roth IRA with Vanguard

I want to keep these funds with Vanguard and:
1) Roll over the old 401K to the existing Roth IRA (after tax contributions) and traditional IRA, to be newly established for the rollover of the before tax contributions.  No tax impact, except possibly on the growth on the after tax contributions if they go in the Roth IRA, right?
2) At some point in the future (during ER, or when I expect a lower income tax rate) convert a portion of the traditional IRA to the Roth IRA (roth pipeline), and pay taxes on the portion that is moved.

-Can these things be done? 
-When I RE I'll have my current employer's 401K, a traditional, and a Roth IRA.  Can I pipeline from both the 401K and the traditional IRA?
-Am I understanding the tax implications correctly? 
-Does the pro-rata rule have any role here?





matchewed

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-Can these things be done?
Yes. You can roll your pre-tax into an IRA and your Roth(post tax) into a Roth IRA.
-When I RE I'll have my current employer's 401K, a traditional, and a Roth IRA.  Can I pipeline from both the 401K and the traditional IRA?
When you RE you'll probably just rollover the 401k into your traditional IRA so you will just pipeline from one source.
-Am I understanding the tax implications correctly? 
There is no tax implication for rollovers. Rollovers are by definition from one particular tax treatment (pre-tax for example) into another of the same type of treatment.
-Does the pro-rata rule have any role here?
Maybe, it depends on the details.

catccc

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Thanks so much for your response!

Yes. You can roll your pre-tax into an IRA and your Roth(post tax) into a Roth IRA.

There is no tax implication for rollovers. Rollovers are by definition from one particular tax treatment (pre-tax for example) into another of the same type of treatment.

So, this wasn't actually a Roth 401K.  I don't think.  It all sits in the same 401K, the plan allowed pre-tax contributions to the legal max, and after-tax contributions up to some percent of salary, in addition to the legal max (mega backdoor roth start).  So I think after tax portion of the 401K has one component that can definitely roll over into the Roth, the original contribution.  There is another portion, the gains on the after-tax contribution, that I think I will have to pay taxes on if it were to roll into the Roth IRA.  Or would it roll into the traditional IRA, and then stay untaxed?

-Does the pro-rata rule have any role here?
Maybe, it depends on the details.

Okay, can we talk details?  I would be rolling over the entire vested balance of the 401K.  The idea is that the traditional IRA would be all pre-tax amounts after all the rollovers are done, though.

Spork

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I suspect you can do exactly what you are trying to do... but... I'm no tax expert.  However, Vanguard is extremely helpful in situations like this.  Since everything sits there, just call them and tell them what you want to do.  They'll both be authoritative on the answer and will probably just handle it while you sit there.