Contributory IRA & Rollover IRA

I have always had the understanding that it was best to segregate a contributory IRA from any Rollover Contributions. If rollover funds are pre-tax from plans such as 401k, and 403b, is there any reason to keep those funds in a separate IRA from a Client’s Traditional IRA that they make contributions to or is it ok to put 401k rollover amounts into the contributory IRA? This is also assuming there is no NUA. Pros, Cons, and opinions welcome.



Advice on this subject has changed along with tax and creditor legislation over the years.

There is no longer any tax related reason to keep these accounts separate unless taxpayer was born prior to 1/2/1936 and is still working.

There is one portability related reason to keep them separate, since some QRP administrators will accept an incoming rollover from a conduit IRA (rollover only), but not from other IRA accounts that may have received non deductible contributions.

Finally, the federal Bankruptcy Act of 2005 accords unlimited creditor protection in BK to rollover IRA accounts, whereas other IRA accounts are limited to 1,000,000 in protection in total plus inflation. The limit for commingled accounts has not been tested, but those who live in states that do not fully protect IRAs from creditors (such as CA), and who have IRA assets near 1mm, should probably keep the rollovers in separate IRA accounts. With assets at this level, small account fees should not be levied if the small account is with the same custodian as the large account.

In summary, for the typical taxpayer none of the above factors would apply, and the accounts can be combined.



Add new comment

Log in or register to post comments