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In 4-2000, my husband's employer-company was sold, so we opted for "trustee-to-trustee transfer",with 401K $ being transferred to Scottrade IRA via check as follows: Scottrade FBO apacherose: IRA". Scottrade has always referred to this transaction as a "rollover", not the technically correct term "transfer"...which I didnt split-hairs-over. Now, my husband would like to start making personal contributions to this IRA--fully realizing that the actual 401K $$ will not be eligible for transfer to another employer plan if "tainted" with personal contributions...but Scottrade says personal funds cannot be added to this "rollover" IRA, & have instructed my husband that he must set up a traditional IRA with Scottrade...& then transfer the holdings from "rollover IRA" to this newly opened "traditional IRA". This is confusing, as I know when the transfer took place in 4-00, that it wasnt a ROTH IRA...so assumed it was a traditional IRA...but cant seem to get this point across to Scottrade, as they adamantly refer to it as "rollover IRA". Is this fairly common among discount brokers...to require a transfer of "rollover 401k-IRA" to a traditional IRA. From reading past posts, I dont recall stumbling across this type of scenario. Any feedback welcome & appreciated!!

thanks in advance--apacherose
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Sounds to me like it's their way of covering their tail with respect to rolling the funds over to another 401k plan in the future. By forcing you to move the funds into another IRA, they are making very clear that the money is not eligible for a future rollover into a 401k.

Are there other ways to handle this issue? Probably. Does this one work for Scottrade? Sounds like it. As long as you're aware of the consequences of "tainting" the rollover funds, just jump through their hoops to get where you want to go. If you give up on this broker, you'll just have to fill out the same paperwork at another one.

--Peter
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Now, my husband would like to start making personal contributions to this IRA--fully realizing that the actual 401K $$ will not be eligible for transfer to another employer plan if "tainted" with personal contributions...but Scottrade says personal funds cannot be added to this "rollover" IRA, & have instructed my husband that he must set up a traditional IRA with Scottrade...& then transfer the holdings from "rollover IRA" to this newly opened "traditional IRA". This is confusing,

It is also nonsense. There is nothing in tax law that prohibits contributions to this account. If your husband wants to keep his account at Scottrade I suggest he find someone up the food chain from the person who told him this. If it turns out that this is a Scottrade "policy," move the account to a custodian who understands that it's your money, not theirs.

TMF ExRO
Phil Marti
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Go to the IRA section of TMF. http://www.fool.com/money/allaboutiras/allaboutiras.htm?ref=RTRiras

About 3 pages in you see a list of the 10 types of IRA's. Here's the scoop on the Rollover…

“7. A Rollover (Conduit) IRA is an IRA set up by an individual to receive a distribution from a qualified retirement plan. Distributions transferred to a rollover IRA are not subject to any contribution limits. Additionally, the distribution may be eligible for subsequent transfer into a qualified retirement plan available through a new employer. To retain this eligibility, the IRA must be composed solely of the original distribution and earnings (i.e., no other contributions or rollovers may be added to or mingled with the IRA), and the new employer's plan must permit the acceptance of rollover contributions.”

From this, I'd say you got the straight skinny from your broker. But if you ever envision rolling into a company plan then don't mix the funds…
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From this, I'd say you got the straight skinny from your broker. But if you ever envision rolling into a company plan then don't mix the funds…

Note that the original poster has no interest in maintaining the conduit nature of the IRA and is fully aware of the effect of making contributions to it. The broker is telling her she cannot make such contributions. The broker is wrong, if it's basing this position on tax law.

TMF ExRO
Phil Marti
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