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Author: cdwillie76 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75891  
Subject: 401k to Roth Question Date: 12/2/2001 10:56 AM
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I currently have a Roth IRA that I created with a roll-over about 2 years ago. I have been bounced around with jobs and I have a small 401k that I have to do something with because it doesn't meet the min investment and I want to roll it over into my Roth. Since I have done a roll-over before, can I do it again? I know about paying the taxes, just want to know if it is possible to do. One more question, roll-overs don't count towards the yearly contribution do they?
Thanks!
Chris
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32689 of 75891
Subject: Re: 401k to Roth Question Date: 12/2/2001 11:19 AM
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Chris writes:

I currently have a Roth IRA that I created with a roll-over about 2 years ago.

Fine. You rolled money in a traditional IRA to a Roth IRA, the only way you can do that unless the money came from another, different Roth IRA.

I have been bounced around with jobs and I have a small 401k that I have to do something with because it doesn't meet the min investment and I want to roll it over into my Roth.

Unless that 401k money is already in a traditional IRA, you cannot do that. You must first transfer/rollover the money to a tradtional IRA. After the money is in the traditional IRA, then and only then may you transfer it to a Roth IRA.

Since I have done a roll-over before, can I do it again? I know about paying the taxes, just want to know if it is possible to do.

Yes, it's possible. Just take care to have the money directly transferred from the traditional IRA to the Roth IRA so you never have the opportunity to cash a rollover check and get at the proceeds. Otherwise, you could run afoul of the once every 12 months rollover rule. The direct transfer between the two IRAs avoids that problem.

One more question, roll-overs don't count towards the yearly contribution do they?

No, rollovers/transfers do not impact on your ability to make an annual IRA contribution in any way.

Regards..Pixy


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Author: DougDanforth Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32696 of 75891
Subject: Re: 401k to Roth Question Date: 12/3/2001 12:03 PM
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A variation on that theme. I currently have a 401K to which I contribute before tax dollars (10% of salary) but also after tax dollars (5% of salary). When I retire (in 5 years) I thought it would be wise to roll my 401K into a traditional IRA. Can I, after that is done, roll the after tax contributions (only these) into my current Roth IRA?

Thanks, Doug


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32697 of 75891
Subject: Re: 401k to Roth Question Date: 12/3/2001 12:57 PM
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Greetings, Doug, and welcome. You asked:

A variation on that theme. I currently have a 401K to which I contribute before tax dollars (10% of salary) but also after tax dollars (5% of salary). When I retire (in 5 years) I thought it would be wise to roll my 401K into a traditional IRA. Can I, after that is done, roll the after tax contributions (only these) into my current Roth IRA?

Nope. A conversion to a Roth is considered a distribution from your traditional IRA. Part of any distribution from a traditional IRA that contains both pre-tax and after-tax contributions will always be taxed based on the ratio of the after-tax contributions to the total value of the IRA in the year of the transfer. Details are contained in
IRS Publication 590 (Individual Retirement Arrangements) available for download at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

As an example, lets say you transfer a 401k to a traditional IRA in 2002 or later, and the transfer consists of $5,000 in after-tax contributions and $10,000 in pre-tax contributions and earnings, for a total of $15,000. You decide to transfer $5,000 to a Roth IRA. Assuming the value of the traditional IRA is still $15,000 in the year of the transfer, then one-third of that IRA consists of already taxed money. Therefore, one-third of your transfer to a Roth will be tax-free ($5,000 divided by $15,000), but the other two-thirds will be taxed ($10,000 divided by $15,000. So, of the $5,000 you transfer, $1,650 will be tax free, but $3,350 will be taxed. When the transfer is complete, you will still have $3,350 of after-tax contributions left in your traditional IRA.

Regards..Pixy


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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32698 of 75891
Subject: Re: 401k to Roth Question Date: 12/3/2001 12:58 PM
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Doug,

No, you can only roll a 401K into a traditional IRA. It doesn't matter whether the contributions were pre or post tax.

However, be sure to keep good records of how much aftertax money you put into your 401K. If you roll to a traditional IRA, you will have a "basis" in your IRA -- how much money you've already paid tax on and don't have to again. When you convert your traditional IRA to a Roth, you'll owe tax, but not on your basis.

Do note that if you leave the money in a Traditional IRA or a 401(k) then there are special rules about how withdrawals are taxed.

So, translated, your question was "Can I choose which dollars to [move when I convert from a traditional IRA with a basis] to a Roth?"

And the answer is no, because of the special rules regarding withdrawals from a traditional IRA. If you have a traditional IRA worth $10,000 with a $1000 basis, if you convert $1000 to a Roth IRA, it will be $900 of pretax money and $100 of post-tax money. Your income will go up by $900.

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Author: buznitz One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32710 of 75891
Subject: Re: 401k to Roth Question Date: 12/3/2001 11:19 PM
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When I converted some of a 401K to a traditional IRA, I had both pre and after tax money in the 401K. Therefore I had to receive a check for a percentage of 401K funds withdrawn that was after tax and could not convert this amount into a traditional IRA. Is this a requirement of the government or a rule of the 401K administrator?

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Author: buc99 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32712 of 75891
Subject: Re: 401k to Roth Question Date: 12/4/2001 2:17 AM
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Have there been changes I am not aware of? I believe one CANNOT rollover after tax 401-k money to an IRA. Only taxable dollars are able to be rolled over. Please inform me if this is wrong.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32714 of 75891
Subject: Re: 401k to Roth Question Date: 12/4/2001 6:52 AM
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Buc99 asks:

Have there been changes I am not aware of? I believe one CANNOT rollover after tax 401-k money to an IRA. Only taxable dollars are able to be rolled over. Please inform me if this is wrong.

You don't have it wrong for this year, but after January 1, 2002, after-tax money from a 401k may be transferred to a traditional IRA or to another employer's 401k. That was part of the recently enacted tax changes discussed in my article "Even More Money for Your Retirement" at http://www.fool.com/retirement/retireeport/2001/retireeport010618.htm. The original question in this thread dealt with a transfer that would occur after 1/1/02, not this year. That's probably where you got confused.

Regards..Pixy

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32715 of 75891
Subject: Re: 401k to Roth Question Date: 12/4/2001 6:57 AM
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Buznitz asks:

When I converted some of a 401K to a traditional IRA, I had both pre and after tax money in the 401K. Therefore I had to receive a check for a percentage of 401K funds withdrawn that was after tax and could not convert this amount into a traditional IRA. Is this a requirement of the government or a rule of the 401K administrator?

Yes, until January 1, 2002, after-tax contributions to a 401k may not be transferred to a traditional IRA and must be returned directly to the 401k participant during a rollover/transfer from the 401k. After 1/1/02 they may be transferred to a traditional IRA or to a new employer's plan. For details, see my article "Even More Money for Your Retirement" at http://www.fool.com/retirement/retireeport/2001/retireeport010618.htm. The original question in this thread dealt with a transfer that would occur in the out years, not in 2001. That's where you got confused. Your plan money was handled correctly during the transfer.

Regards..Pixy

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