Author Topic: Roll Traditional IRA into 401k?  (Read 946 times)


  • 5 O'Clock Shadow
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Roll Traditional IRA into 401k?
« on: January 10, 2020, 12:17:32 PM »
I'll be 55 years old next year (2021), and my employer's 401k plan will allow me to take penalty-free withdraws beginning in the year in which I turn 55. (fewer than 12 full months from today!)

The 401k is with T.RowePrice, and it offers VFIAX (Vanguard S&P500 index fund) and VBTLX (Vanguard total bond fund). The IRA is with Fidelity, and it currently holds equity index funds IVV and ITOT (S&P 500 and Total Stock Market), along with smaller amounts of BRK-B and AAPL.

Total value of the IRA is ~$154,000. Total value of the 401k is ~$530,000. I'll contribute the max allowable to the 401k this year: $19,500 + $6,500 'catch up contribution' = $26,000.

Should I roll the IRA into the 401k? I'd pay 20% tax on the $154k, a portion of which would be refunded in 2021. But I'd also have a higher 401k balance, from which I can make my ~4% safe withdraw rate without penalties. (I'll probably take 3.5%). 

I have another ~$550,000 in taxable accounts, and my wife, who is 6 years younger than me, has $250,000 in her IRA. She won't be touching that until the early 2030s, when she is 59.5 years old unless we set up a Roth conversion ladder, and we don't intend to do that at the moment.

So, I'm on the verge of having penalty free access to most of my tax-advantaged assets, except for my IRA, unless I roll the IRA into the 401k.

Any thoughts on this situation? What decision process would you undertake given the same circumstances?


  • Stubble
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Re: Roll Traditional IRA into 401k?
« Reply #1 on: January 10, 2020, 04:29:10 PM »
why would you have to pay 20% to roll into 401K? they're both pre-tax


  • Magnum Stache
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Re: Roll Traditional IRA into 401k?
« Reply #2 on: January 12, 2020, 11:08:08 AM »
Agree with the above.  If your 401(k) is pre-tax, then rolling over your traditional IRA into your 401(k) pre-tax should have zero tax consequences.

A few other things to think about:

1.  Your 401(k) plan may or may not permit you to rollover your IRA into it.  Read your plan documents; it will say in there if it's allowed.  You can ask your plan administrator also, but incoming rollovers are unusual so they might not be aware of this feature.

2.  Your 401(k) plan may have both pre-tax and post-tax options.  If you roll it into the pre-tax option, there should be zero tax consequences.  If you roll it into the post-tax option, you probably will owe ordinary income taxes on the total amount rolled over.

3.  While federal law says you can withdraw money from your 401(k) penalty-free, your plan may impose restrictions.  They might limit you to a single withdrawal, or once per year, or some other kind of restriction.  Check your plan documents to see what they allow, or ask the plan administrator.

4.  Remember that you have to separate from service (quit, fired, laid off, retired, whatever) at least in the year in which you turn 55 - or it can be later.  So you'd need to stay in your job at least one working day next year.  Don't lose your job this year if you want to use this option!


Looking at your overall picture, if what you've described in your post represents most of your assets (i.e., you're not planning to downsize from your $2M mansion into a $250K condo), there are two other paths to consider:

1.  Live off taxable until you hit 59.5.  If you do this, you could either leave your 401(k) where it is for supplemental penalty-free withdrawals between now and your 59.5, or you could roll it into your traditional IRA (not a taxable event) then spend from your traditional IRA after your 59.5.

2.  Do a 72(t) SEPP plan from your IRA.  If you follow an SEPP plan, you can make penalty-free withdrawals from your traditional IRA before 59.5.  The main restriction is that you have to make the withdrawals for 5 years or until age 59.5, whichever is longer/later.  And the amount you take out each year has to be calculated according to three different options.  And once you start you're generally locked into the plan; if you change it or do some other disqualifying things, then you may owe retroactive taxes and penalties.  But since you're about to turn 55, that's sort of a sweet spot for considering an SEPP.


You do realize that it doesn't matter (except for tax purposes) where you take your 4% from, right?  If you have $1M, you can take $40K a year, and it can be from one account or three accounts or whatever.  In other words, you can take 4% of the sum of your IRA and 401(k) whether they're combined or separate, and you can take that 4% from the IRA or the 401(k) or in any combination.


If the 20% you're referring to is the automatic withholding on a rollover, you need to realize that if they take 20% of your traditional IRA and send it to the IRS, and you don't put that 20% amount into your 401(k), then that 20% will be considered a distribution, and you'll owe both income taxes and a 10% early withdrawal penalty?  So if your IRA is $154K and they withhold 20% ($30.8K) and you rollover the ($154K - $30.8K) to your 401(k), you'll owe ordinary income taxes and a 10% early withdrawal penalty on $30.8K.  The other option is to make it up by taking, say, $30.8K from your taxable account and putting it with the rollover money to get the full $154K into your 401(k).

However, when I rolled my traditional IRA into my 401(k), the IRA custodian sent me the full amount; they did not withhold 20%.  If you still want to do the rollover, you might check with your IRA custodian and see what they do in your situation.


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Re: Roll Traditional IRA into 401k?
« Reply #3 on: January 12, 2020, 01:23:35 PM »
Your 401(k) balance seems like it's high enough already to last you until you can take from your IRA with no early withdrawal penalty, so I don't see a huge need to transfer the IRA. But if you want to consolidate your funds to simplify things I don't see anything wrong with that.