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Author: CrackerJack99 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121164  
Subject: 401k Rollover to Roth IRA Date: 12/6/2010 5:11 PM
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Trying to understand the tax implications involved. Is it only a one-time tax payment on the 401k money being converted into the Roth IRA? If so, I am ready to accept that hit... However, the representative from Fidelity began tossing around terms like "commingling" and "bookkeeping nightmare for years to come". She was, admittedly, not an expert on the subject and just trying to make sure I was aware of potential consequences. Most of the info I've been able to find on the subject seems a little outdated. Any clarification would be greatly appreciated...

Thanks!!
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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: 111586 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/6/2010 5:56 PM
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Trying to understand the tax implications involved. Is it only a one-time tax payment on the 401k money being converted into the Roth IRA? If so, I am ready to accept that hit...

That's it, but I'd recommend that you take the intermediate step of rolling the 401(k) into a traditional IRA first. That would preserve your option to reverse the conversion plus, in 2010 only, you can elect to split the income from the conversion equally between 2011 and 2012 rather than including it all in 2010 income.

Who knows what the rep you were talking to was talking about? That's why their fine print says "talk to your tax advisor."

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: 111588 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 12:10 AM
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Overall Fidelity is a good company, but some of the reps are airheads. There is a reason that older investors don't like to deal with the perky young and uneducated. When the rep isn't competent to handle your situation, demand a rep that can.

There is no bookkeeping nightmare. The only requirement is to track the date of the conversion or conversions. After 5 years, even that doesn't matter.

Unless laws have changed, it is necessary to roll the 401K to a traditional IRA and then convert it to a ROTH. Fidelity can made the intermediate step transparent.

This is a one time option to split taxes over two years, but you don't have convert the entire amount at any one time. You can convert any percentage any year and have control over the taxes.

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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: 111589 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 2:13 AM
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Unless laws have changed, it is necessary to roll the 401K to a traditional IRA and then convert it to a ROTH.

The law changed several years ago, and the intermediate step is no longer required.

Phil
Rule Your Retirement Home Fool

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Author: RHinCT Big red star, 1000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 111590 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 8:34 AM
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There is no bookkeeping nightmare. The only requirement is to track the date of the conversion or conversions. After 5 years, even that doesn't matter.

When I converted my 401-k to an IRA, both with Fidelity, there was some post-tax money to be converted as well as the bulk of the pre-tax money. The Fidelity representative I worked with warned me that if I converted all of it into the IRA I would have to file some sort of form with the IRS every year. Not a nightmare perhaps, but a complication. For better or worse I took the alternative of having the already taxed portion distributed to a non-IRA account.

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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: 111591 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 8:59 AM
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When I converted my 401-k to an IRA, both with Fidelity, there was some post-tax money to be converted as well as the bulk of the pre-tax money. The Fidelity representative I worked with warned me that if I converted all of it into the IRA I would have to file some sort of form with the IRS every year. Not a nightmare perhaps, but a complication. For better or worse I took the alternative of having the already taxed portion distributed to a non-IRA account.

If this was a long time ago the rep was right, but it's been years since an 8606 was required every year if there was after-tax money in an IRA. Given your track record with Fidelity's tax law advice, I suggest that you tell them what you want to do, then come here for confirmation of what they're telling you.

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: 111592 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 10:05 AM
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When I converted my 401-k to an IRA, both with Fidelity, there was some post-tax money to be converted as well as the bulk of the pre-tax money.

If there is post tax funds in a 401K, then an 8606 has to be filed to establish the cost basis. I already file that form for our traditional IRA. If the entire amount is converted to a ROTH, then the tax basis is dealt with at the time of conversion and no further forms are required.

For better or worse I took the alternative of having the already taxed portion distributed to a non-IRA account.

It is possible to only distribute the taxed portion?

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Author: RHinCT Big red star, 1000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 111593 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 10:14 AM
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It is possible to only distribute the taxed portion?

In my case I was closing out the 401K, so all the money had to go somewhere. I had the impression that the pre and post-tax portions had to come out proportionally but I wouldn't put much value on my impressions. This was all about 18 months ago.

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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: 111594 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 10:30 AM
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It is possible to only distribute the taxed portion [of a 401(k)]?

Yes. See Pub 975.

Phil
Rule Your Retirement Home Fool

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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: 111595 of 121164
Subject: Re: 401k Rollover to Roth IRA Date: 12/7/2010 10:31 AM
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Make that Pub 575. Sorry.

Phil
Rule Your Retirement Home Fool

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