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Author: MomAtHome Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Have I missed the Roth IRA boat? Date: 2/5/1998 11:09 PM
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I have been trying to digest an IRS publication on IRAs and I'm not sure if I'm understanding it correctly. Can someone help?

I'd like to roll a 401K account into a Roth IRA. From what I understand, I first have to roll it into a traditional IRA, then I can roll it into a Roth. However, there seems to be a rule about only being able to rollover an IRA once in a twelve month period. Does this apply in this case? Does the roll from the 401K into the IRA count as one, and then roll into the Roth count as a second? If it does, I'm out of luck on being able to spread the taxable income out over 4 years. Bummer.

Does anyone have any insight on this? Thanks in advance ...

Laura
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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: 1651 of 74759
Subject: Re: Have I missed the Roth IRA boat? Date: 2/6/1998 8:59 AM
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Laura,

<<I have been trying to digest an IRS publication on IRAs and I'm not sure if I'm understanding it correctly. Can someone help?

I'd like to roll a 401K account into a Roth IRA. From what I understand, I first have to roll it into a traditional IRA, then I can roll it into a Roth. However, there seems to be a rule about only being able to rollover an IRA once in a twelve month period. Does this apply in this case? Does the roll from the 401K into the IRA count as one, and then roll into the Roth count as a second? If it does, I'm out of luck on being able to spread the taxable income out over 4 years. Bummer.>>

A "rollover" is when you get a check made out in your name from an IRA or retirement plan. You have 60 days from receipt of that check to get the money in an IRA. You may "rollover" the same IRA money only once every 12 months.

A "direct transfer" is a transaction that moves your money directly from one retirement plan/IRA custodian to another. You never have the opportunity to cash a check and lay hands on that money. It goes from one custodian to the other. A direct transfer has no time limit. You can do it daily if you can arrange it.

In your case, if YOU personally get the 401k check made out in your name, and you then sign it over to an IRA custodian, that's a rollover. If the check goes directly to the IRA from the plan, that's a direct transfer. For a number of reasons, not the least of which is a major tax hassle, you want the 401k money moved to the IRA via a direct transfer. Your broker and plan custodian can guide you through the process. After the money is in the traditional IRA, simply arrange for another direct transfer of the funds to a Roth IRA. There's no time limit restriction, and everything will work out fine.

Regards…..Pixy



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Author: jo614 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1667 of 74759
Subject: Re: Have I missed the Roth IRA boat? Date: 2/6/1998 9:03 PM
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Pixy

You don't know how much I appreciated you last post about direct transfers. I had called the IRS today because I received a 1099R for distribution of retirement savings that I had transferred to my broker due to seperation of service from my previous employer. This IRS agent had me almost in tears. She was saying that I could not take my 403b fund or my pension fund and "roll" it over into an IRA. She said that now I would be subject to the tax on all that money and I would also exceed the yearly maximum IRA contribution and would be penalized 6 percent. I frantically called my financial advisor and she told me the IRS agent was mistaken. After reading your post, I now understand that what I did was a direct transfer and was not related to any kind of rollover. I can sleep better tonight knowing that the IRS isn't coming after my retirement nestegg. Thanks for a wonderful post at a most appropriate time. Jo

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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: 1673 of 74759
Subject: Re: Have I missed the Roth IRA boat? Date: 2/7/1998 10:31 AM
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Jo,

<< This IRS agent had me almost in tears. She was saying that I could not take my 403b fund or my pension fund and "roll" it over into an IRA. She said that now I would be subject to the tax on all that money and I would also exceed the yearly maximum IRA contribution and would be penalized 6 percent. I frantically called my financial advisor and she told me the IRS agent was mistaken. After reading your post, I now understand that what I did was a direct transfer and was not related to any kind of rollover. I can sleep better tonight knowing that the IRS isn't coming after my retirement nestegg. >>

It's sad we can't get better advice from those who are paid to know better. But I'm pleased you didn't make a mistake or act on the poor information you received. Perhaps we'll get better service from the IRS someday so we can all sleep better. I doubt it will happen in my lifetime, though.

Regards…..Pixy


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