If I contribute the max to a Roth IRA ($3,000 at present) and contribute to a 401k, what happens when I roll the 401k over to an IRA? This would likely happen if the 401k is through my employer and I change jobs. It would seem I would be defeating the $3,000/yr limit on the Roth, since my IRA(s) would now have contributions that were greater than the annual limit. Thanks for the clarification.
The $3,000/yr limit is for CONTRIBUTIONS. A rollover from a 401k to an IRA is not considered a contribution, it is considered, oddly enough, a ROLLOVER. There is no limit on the amount you can roll over from a 401k to an IRA. On a similar note, when you roll over your 401k, it will be going into a traditional IRA (a.k.a. pre-tax IRA). At that point, you can leave it in there indefinitely or you can roll it over again (in part or in whole) to a Roth IRA. You amount you roll over will be considered ordinary income, and you'll have to pay taxes on it. If at all possible, pay those taxes from outside the Roth so you can maximize the tax-free growth inside of the Roth. -Agg97
ptchemist, welcome. Glad you could join us.May I presume you are a chemist? Me too. We need all the Foolish chemists we can find.Chemists hang out on the following boards--Chemical Industries board. http://boards.fool.com/Messages.asp?mid=20928291&bid=100041Science and Technology board. http://boards.fool.com/Messages.asp?mid=20909103&bid=116332There have also been a few chemist postings on Employment Networking. http://boards.fool.com/Message.asp?mid=19993057Welcome to the Fool. Feel free to join in the discussions. Let us know what your interests are. (If you fill out your profile with a bit more detail, it would help us get to know you.)Welcome aboard.Paul
Thanks for an excellent posting, Agg97. Its minor point, but once when you rolled over a 401K to an IRA, they would refund your after tax contributions. So only your pretax funds, ie your pretax contributions, vested portion of employer's match, and your paper profits went to the Rollover IRA.Now days, I am told you can also rollover your after tax contributions. So presumably the account will contain both pretax and after tax contributions and you will keep records of that by filing Form 8606 each year at tax time.Its a minor point, but your choice of words was not quite accurate.
Its a minor point, but your choice of words was not quite accurate. Thanks for the correction, pauleckler. You're absolutely correct about after-tax contributions to your 401k. I guess I need to start writing for "every possible case" instead of "the most common case". As best I understand it, when you roll over after-tax 401k contributions to your IRA, it is treated similarly to non-deductible contributions for tax purposes.-Agg97
No big deal, agg. Thanks for being gracious about it. The info you post is right on target.
Chemists hang out on the following boards--How about chemical engineers...are we welcome? :^)ACME
"How about chemical engineers...are we welcome? :^)"Gee, Acme. I had not a clue. You must be very subtle.Sure Acme. We let engineers post on those boards, as long as their slide rules don't get in the way.Feel free to join in.
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