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Does inactive 401K balance "count" in my IRA total?
03-01-2016, 12:54 PM
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#1
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Thinks s/he gets paid by the post
Join Date: Oct 2014
Posts: 1,097
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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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03-01-2016, 01:05 PM
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#2
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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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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03-01-2016, 01:28 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,659
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Quote:
Originally Posted by Philliefan33
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?
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I don't think the 401k counts, but what do the Form 8606 instructions say?
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03-01-2016, 01:41 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,346
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When calculating tax on tIRA conversions to Roth one ignores all 401ks.
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03-01-2016, 01:59 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
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No and fire the rep.
Sent from my iPad using Early Retirement Forum
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03-01-2016, 03:01 PM
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#6
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Recycles dryer sheets
Join Date: Apr 2007
Posts: 402
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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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03-01-2016, 05:00 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Oct 2014
Posts: 1,097
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Quote:
Originally Posted by pb4uski
I don't think the 401k counts, but what do the Form 8606 instructions say?
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Form 8606 does not mention 401Ks at all.
Silly USAA rep.
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03-01-2016, 05:51 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,602
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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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