when nondeductible 401(k) contributions can be rolled into a Roth IRA

I have a client who has a 401(k) that allows nondeductible contributions. My thought was to recommend nondeductible contributions in addition to his deductible contributions. Then roll the nondeductible into a Roth IRA when he retires. He will retire in four years and is over 59 1/2.

I am not pleased with the 401(k) investment options so would prefer that he make annual nondeductible 401(k) contributions then roll them annually into a Roth IRA. Can that be done if the plan so allows?

Thanks as always …. Mary



Yes, plans generally allow distributions, some without limit, others limited to so many per year. Since the gains on the ND contributions must also be distributed along with the contributions, the more frequent the rollovers the smaller the amount of gain and the faster the money gets into a Roth IRA. If the gains in the plan are large enough, a split rollover per Notice 2014-54 can be considered, but the gains going to a TIRA will have a negative effect on regular back door Roth conversions if client is also doing them. Note that some plans require the rollover to be done to the designated Roth in the plan (In plan Roth rollover) instead of out of the plan to a Roth IRA, since that keeps the assets in the plan. If given a choice, the Roth IRA is the better destination.



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