Traditional IRA Rollover to 401k | Ed Slott and Company, LLC

Traditional IRA Rollover to 401k

Facts:

1. Client, age 57, has 250k traditional IRA. This IRA contains deductible IRA contributions, non-deductible IRA contributions, a rollover from a SEP-IRA and a rollover from a Simple IRA.
2. Client has 150k 401k plan (not Roth). The 401k plan allows rollovers from Traditional IRA's.
3. Client income too high to make Roth IRA contribution. As such, client's desire is to make a $7,000 back door Roth IRA contribution
4. To reduce income taxation on Roth IRA conversion, client plans to rollover entire 250k Traditional IRA to 401k so that the only amount being converted to the Roth IRA is the $7,000.

Question:

As long as the 401k plan allows rollovers from Traditional IRA's, do you see anything that would preclude the rollover of the 250k Traditional IRA to the 401K?

Thank you!

Client CANNOT roll any IRA basis (usually from past non deductible contributions) to a qualified plan, and the 401k administrator will probably require client to certify that no such amounts are included in the rollover. Some 401k plans will not even accept IRA rollovers from an account that received regular contributions. Note that if client has more than one TIRA account, the IRA basis is aggregated over all of them, and the first dollars rolled into the 401k will be treated as pre tax amounts. But if this 250k IRA is the only non Roth IRA owned by the client, the most that can be rolled into the 401k is 250k less the amount of IRA basis. Finally, when client reports the rollover on Form 1040, they need to include an explanatory statement about the rollover since 401k plans do not issue Form 5498 reporting rollover contributions. Without the statement the IRS may well send an inquiry asking for documentation that the rollover was actually made. The statement should eliminate this issue as long as the IRS reads it.

 

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