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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: 401k roller, basis, and ROTH Date: 1/4/2014 10:19 AM
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I've done a search and come up with pretty much what I expected. This has a twist, but one I don't think is right but thought I'd check here.

I'm rolling over one of Mrs. Goofy's 401k's from a long-ago employer into an already existing IRA at our brokerage. She has roughly $10,000 worth of "basis" (what the form describes as "non-taxable employee contributions).

A person on the retirement info line at the brokerage said I could separate that "basis" from the other and put it into a ROTH if the contributions were made before 1987. (They were.) The intent, obviously, is to separate the non-taxable at withdrawal from the taxable, not merely to roll over some of the taxable into a ROTH, which I could do anyway at any time. The remainder (not the $10,000 would go into her existing IRA.)

I have not heard of this before (particularly the pre-1987 thing), and am wondering if anyone here has, or is the person on the phone confused (or worse.)

Thanks.

Sidenote: even though we specifically asked that the 401k be transferred directly to the brokerage, the check was sent to us (made out to the broker FBO Mrs. Goofy), but it's been only a week, so no worries there. But why didn't they just do as we asked? The people on the retirement line say it happens all the time. Weird.
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119793 of 121061
Subject: Re: 401k roller, basis, and ROTH Date: 1/4/2014 11:08 AM
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I'm rolling over one of Mrs. Goofy's 401k's from a long-ago employer into an already existing IRA at our brokerage. She has roughly $10,000 worth of "basis" (what the form describes as "non-taxable employee contributions).

In the world of retirement accounts "basis" refers to after-tax contributions. I don't know exactly what "non-taxable employee contributions" means. Does Mrs. G recall making after-tax contributions to this 401(k)? Are there other similar descriptions of parts of the disbursement? If so, what are they, and does it all add up to the total?

A person on the retirement info line at the brokerage said I could separate that "basis" from the other and put it into a ROTH if the contributions were made before 1987. (They were.) The intent, obviously, is to separate the non-taxable at withdrawal from the taxable, not merely to roll over some of the taxable into a ROTH, which I could do anyway at any time. The remainder (not the $10,000 would go into her existing IRA.)

I have not heard of this before (particularly the pre-1987 thing), and am wondering if anyone here has, or is the person on the phone confused (or worse.)


Without the 1987 reference I've heard of it (poppycock) but that year is a new twist I've not heard of yet.

If there is after-tax money in her 401(k) there's a way of doing what you want to do, but what you're talking about isn't it. Check out this article: http://fairmark.com/retirement/roth-accounts/roth-conversion...

Sidenote: even though we specifically asked that the 401k be transferred directly to the brokerage, the check was sent to us (made out to the broker FBO Mrs. Goofy), but it's been only a week, so no worries there. But why didn't they just do as we asked? The people on the retirement line say it happens all the time. Weird.

Not really weird. It has the same effect as doing a direct transfer since the beneficiary never takes possession of the money. I'm a little concerned about this situation since I assume there was no withholding. I don't think you could use this for the method described in the article since it's not a distribution to the beneficiary. Before you spend a lot of time thinking about this you might want to check with the plan to see if you could return the check even though they effectively did what you told them to do.

Phil
Rule Your Retirement Home Fool

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119794 of 121061
Subject: Re: 401k roller, basis, and ROTH Date: 1/4/2014 11:26 AM
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Sidenote: even though we specifically asked that the 401k be transferred directly to the brokerage, the check was sent to us (made out to the broker FBO Mrs. Goofy), but it's been only a week, so no worries there. But why didn't they just do as we asked?

Since the check FBO and isn't made out to Mrs. Goofy, it is considered a trustee to trustee rollover.

It is closer than some of my experiences. I ask a credit union for a check written to FBO my name. They moved the IRA to a savings account before issuing a check in my name only. I gave up, they had already made a truste to trustee rollover impossible. I just did the rollover.

I moved my IRA from TD Ameritrade because they kept moving my account to the downtown branch and incompetent phone support. Even though I gave TD Ameritrade the exact information for the check, it took three tries. The airhead creating the check refused to issue a check written to FBO. Her first try was my name alone. I refused it. The next try was another version of my name only. After I refused two checks and demanded she issue a correct check, she finally checked with the branch manager. His obvious response was yes you can issue a check written as FBO.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119795 of 121061
Subject: Re: 401k roller, basis, and ROTH Date: 1/4/2014 12:12 PM
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In the world of retirement accounts "basis" refers to after-tax contributions. I don't know exactly what "non-taxable employee contributions" means. Does Mrs. G recall making after-tax contributions to this 401(k)? Are there other similar descriptions of parts of the disbursement? If so, what are they, and does it all add up to the total?

Yes, these are after-tax contributions.(She and I were in the same plan. Same employer for a time. That's how we met.) We both had after-tax contributions in the way-back when. These monies have been sitting in a fund of bonds (not a bond fund) which has been paying above market interest until now, but with their long bonds coming due and with the repurchase of newer bonds, the rates have dropped to almost market rates.)

The only numbers (not including pennies) on the page are:

Gross amt: $187,877
Eligible for rollover: $187,877
Direct rollover: $187,877
Non taxable employee contributions: $10,741

There are many other boxes, all with "$0":
Eligible rollover received in cash
Taxable amount on distribution
Federal tax withheld
State tax withheld
Unrealized appreciation on shares
outstanding loan balance

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119796 of 121061
Subject: Re: 401k roller, basis, and ROTH Date: 1/4/2014 1:25 PM
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She and I were in the same plan. Same employer for a time. That's how we met.

Love it!

Yes, these are after-tax contributions

With things as they stand the only thing you can do is deposit the whole check into a traditional IRA. The after-tax money is then treated like any after-tax contribution to a traditional IRA. (If you do things this way don't forget to include Form 8606 to update her basis when you file your 2014 return.)

There are options when taking a lump-sum distribution of a 401(k) with after-tax money in it, but it sounds like you told them to transfer the whole thing to her IRA. The other option would have been to take a distribution of the after-tax money and roll everything else into the IRA.

If you want to do the Roth maneuver mentioned in the link I provided it has to be a lump sum distribution of the entire account, complete with 20% withholding. Since it's so early in the year you could adjust your current withholding so that you didn't have to wait until 4/2015 to get your money back, but you'd still have to come up with the cash now to make the rollover complete.

As I said before, if you want to do something other than roll everything into the traditional IRA you'll have to see if you can "undo" the distribution and start over.

Phil
Rule Your Retirement Home Fool

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