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The Problem: Does anyone know of a way - legal, mind you :) - to roll over the money from a 401(k)into a Traditional IRA without having to pay taxes on the principal and growth in the 401(k)?

The Situation: I'm trying to take my father's ~$96,000 away from a 401(k) that is bringing him 2% returns in the year-to-date and put it into an IRA that he can actively manage.

Suggestions: Any suggestions are more than welcome. Thanks for the help!

BWTaylor
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Is your father still working? What does he want?

dharmadollars
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BWTaylor,

Does your father still work for the company where he holds the 401(k)? If so, it is quite likely an impossible goal.

If, on the other hand, your father is no longer working for that company, it should be pretty straightforward for your father to go to any broker (even a discount broker) and say "I want to roll my 401(k) from a former employer directly into an IRA." That broker can give him the forms to execute a trustee-to-trustee direct transfer of the money from the 401(k) to the IRA.

It is extremely important that the transfer take place as a direct trustee-to-trustee transfer. Otherwise, your father will receive a check that has 20% withheld for federal taxes, and if he doesn't transfer the money into another qualified retirement account within (I beleive) 60 days, the whole thing will be considered a withdrawl, and he will owe income taxes and potentially penalties (if he is under 59 1/2) as well. Not only that, but once the deadline passes, your father cannot recontribute the money to the account.

Best of luck to you,

-Chuck
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You need to have the money transferred to a Rollover IRA, which is different from a traditional IRA or a Roth IRA.

The 401(k) should make the check out to the Rollover IRA custodian, whoever that might be, and include "FBO" and then your father's name (FBO means "for the benefit of").
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You need to have the money transferred to a Rollover IRA, which is different from a traditional IRA or a Roth IRA.

Are you sure? Everything I had read indicates that a "Rollover IRA" is merely a Traditional IRA that has been funded by a "rollover" from a 401(k), 403(b), or other similar plan.
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You need to have the money transferred to a Rollover IRA, which is different from a traditional IRA or a Roth IRA.

Are you sure? Everything I had read indicates that a "Rollover IRA" is merely a Traditional IRA that has been funded by a "rollover" from a 401(k), 403(b), or other similar plan.


As far as I know, you can't contribute to a Rollover IRA, but it is like a traditional IRA in other respects. If I'm wrong about this, please let me know.

I know on the forms for Ameritrade Advisor Services that there is a separate check box for Rollover IRA's versus Traditional IRA's.
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MadCapitalist writes:

As far as I know, you can't contribute to a Rollover IRA, but it is like a traditional IRA in other respects. If I'm wrong about this, please let me know.

Prior to January 1, 2002, rollover money had to be kept separate and distinct from other traditional IRA money to preserve its eligibility to be transferred into a subsequent employer's qualified retirement plan, assuming that plan allowed such transfers. You could have made an annual contribution to the rollover IRA at any time, but that contribution would have forevermore "tainted" the rollover money, thus rendering it permanently ineligible for a later transfer to a new employer's 401(k) plan.

With the passage of the EGTRRA of 2001, you may now transfer previously untaxed tradtional IRA money to an employer's retirement plans that accepts such transfers. Thus, there is no longer a need to keep rollover IRA money separate from other traditional IRA money.

Regards...Pixy
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>>With the passage of the EGTRRA of 2001, you may now transfer previously untaxed tradtional IRA money to an employer's retirement plans that accepts such transfers

Good to know in case you ever get sued, since 401(k) assets are protected from creditors and IRA assets aren't.

Nick
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