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Subject:  Re: 401k roller, basis, and ROTH Date:  1/4/2014  11:08 AM
Author:  TMFPMarti Number:  119793 of 127753

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:

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.

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