Author Topic: Rollover IRA  (Read 1231 times)

noviceatinvesting

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Rollover IRA
« on: February 24, 2015, 04:53:27 PM »
I just called Fidelity to put in $5000 into my rollover traditional IRA (which only had about $58k in it). I've never added funds to this IRA, which used to be a 401K. I am currently not working so this is a Spousal IRA. Did I make a mistake by adding that money into this rollover IRA instead of opening a new one? The Fidelity agent said something about new employers may not accept this IRA if I wanted to roll it into a new 401K because it has aftertax contributions in it. I don't know if I will ever go back to work, but I am worried about any tax implications as well. I wish I could have opened a new Roth IRA and put the money in that, but for 2014 we don't qualify. Next year we will...easily. If I ever decide to do a back door Roth, would it be possible because of the pre-tax/post-tax funds mixing together?

seattlecyclone

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Re: Rollover IRA
« Reply #1 on: February 24, 2015, 05:18:45 PM »
The law considers all of your traditional IRA accounts as one for tax purposes, so whether the funds are all in one account or two makes no difference whatsoever.

Fidelity is correct that you may not be able to roll after-tax funds into a future 401(k).

The back-door Roth depends on you not having any existing pre-tax traditional IRA funds. If you already have pre-tax IRA funds, you'll end up paying tax on a large percentage of any Roth conversion. The way around this is to first eliminate your pre-tax IRA balance by rolling it into an employer plan before you make your after-tax contribution, but that's not an option for you right now because you are not working.

Since you don't know when or if you might work again, I would advise you to just keep making whatever contributions you can, forget about the backdoor Roth option, and start on a Roth pipeline when you get closer to retirement. The fact that part of your IRA is post-tax will help here because you'll pay tax on less than 100% of the amount converted.

Eric

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Re: Rollover IRA
« Reply #2 on: February 24, 2015, 06:19:25 PM »
The restriction of being unable to rollover an IRA into a 401k is a non-issue for almost everyone.  The likelihood that your future 401k has options that are better than your IRA are exceedingly slim, so it's going to be in your best interest to keep your IRA money where it is even if you start a new job with a 401k.