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Does inactive 401K balance "count" in my IRA total?
Old 03-01-2016, 12:54 PM   #1
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Does inactive 401K balance "count" in my IRA total?

I just got off the phone with a rep from USAA, and he told me something that I cannot confirm (and I hope he is wrong).

I was planning on converting all of the money in my tIRA to a Roth IRA. All of the contributions to the tIRA were non-deductible; in fact the basis of the tIRA is slightly more than the current value ($20,000 vs. $19,875).

The only other IRA I own is a Roth IRA. I participated in a 401K at my employer until April 2015, when I ER'd. I left the money in the 401K.

I am working under the premise that the conversion will be entirely tax free, since the non-deductible basis is more than the current value in all tIRA's. But Mr. USAA rep told me that my inactive 401K is considered an tIRA by the IRS -- so the old "milk in the coffee" rule applies and I have to pro-rate the non-taxable portion to include the balance in the 401K. (Of course, he also reminded me that he is not a CPA, so he cannot give tax advice). If this is the case I will not do the conversion because 96% of it will be taxable.

I cannot find anything on irs.gov or any other website that indicates an inactive 401K is considered an IRA. I filled out a Form 8606, to see what info is needed...but no mention of any 401K balances. The form says on Line 6: "Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31..."

Does anyone know how the IRS treats an inactive 401K?
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Old 03-01-2016, 01:05 PM   #2
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Pretty sure your old 401k (inactive or not) is considered separate from your traditional IRA.

Alas, I'm not a tax accountant either so don't consider that legal advice.
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Old 03-01-2016, 01:28 PM   #3
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Quote:
Originally Posted by Philliefan33 View Post
I just got off the phone with a rep from USAA, and he told me something that I cannot confirm (and I hope he is wrong.

...... I filled out a Form 8606, to see what info is needed...but no mention of any 401K balances. The form says on Line 6: "Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31..."

Does anyone know how the IRS treats an inactive 401K?
I don't think the 401k counts, but what do the Form 8606 instructions say?
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Old 03-01-2016, 01:41 PM   #4
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When calculating tax on tIRA conversions to Roth one ignores all 401ks.
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Old 03-01-2016, 01:59 PM   #5
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No and fire the rep.


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Old 03-01-2016, 03:01 PM   #6
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I think maybe if you had rolled the 401k over into an IRA, then you would have had to count it. But since it is still in the 401k you shouldn't.
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Old 03-01-2016, 05:00 PM   #7
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I don't think the 401k counts, but what do the Form 8606 instructions say?

Form 8606 does not mention 401Ks at all.

Silly USAA rep.
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Old 03-01-2016, 05:51 PM   #8
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401Ks do not count.

In fact what I might do is open a solo 401K, rollover my IRA's into it, except for 1 and then do the conversion. That's how powerful the "ignore 401K" rule is.
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