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?