IRA to 401-K conversion

[stephenandrew]

Previously I contributed money to a traditional IRA. My earliest contributions were tax deductible, but over time, my income grew and I became inelligible to deduct my contributions. However, as I had extra money I made some post/after tax contributions to the traditional IRA. I believe I filed form 8606(?) with my federal taxes to show these were post tax contributions.

My current employer will allow me to move pre tax money and earnings from my IRA into my 401-K. My employer will not allow me to move my post tax money into the 401-K. If I were to determine the amount of my post tax contributions to the IRA and ask the custodian of my IRA to move everything but that amount into my 401-K, would that be ok? I ask because it is my understanding that when you withdraw money from a "co-mingled" IRA, you do not get to pick if you are pulling out pre and post tax $--instead some of the money is pre tax and some post tax based on the ratio of pretax/posttax money in the account. Obviously, you would pay income tax on the pre tax withdrawls. If this is more or less correct, would it be applicable to my desire to move money from my IRA to 401-K? Would I have to pay income tax, and maybe penalty on this sort of transaction becasue I have post tax money in my IRA?

Thank you.

 

[kaneohe]

I don't know the answer to your question and you have a reasonable concern.
Why do you want to put IRA $ into the 401K? just curious.

 

[Niko]

Why would you want your IRA $ in a 401K? Keep the money in an IRA where the fees will be significantly lower than a 401K.

 

[stephenandrew]

Why would you want your IRA $ in a 401K? Keep the money in an IRA where the fees will be significantly lower than a 401K.

Actually in my case, the fees will be lower than in my IRA, and the investment options/choices meet my needs.

 

[stephenandrew]

I don't know the answer to your question and you have a reasonable concern.
Why do you want to put IRA $ into the 401K? just curious.

Well, this was my thinking. Right now becaue of my income I am inellgible to convert my traditonal IRA to a Roth IRA. My understanding is that in 2010, the income limitation goes away, and I can make the conversion and spread any taxe payment due over two years. If I were able to move the pre-tax part of my IRA to my 401-K, all I would have left in my IRA would be post tax money. Bascially, I was hoping to virtually eliminate/reduce any tax consequence to making the conversion by moving the taxable part of the IRA (Pre tax contributions and earnings) to my 401-K. So I would lose the benefits of converting everything to the Roth, but gain the beneift of not having to pay taxes on the pre-tax money I was converting. That was my idea anyway.

 

[perinova]

Can you have both pre tax and post tax into your IRA? It might be a nondeductibe IRA?

It seems to me that you will be able to choose which portion of your IRA you want to transfer pre or post tax money. If this is the case you would be able to keep your other portion if you wish.

Regarding the transfer of pre-tax money into your 401k: this is not a taxable event. Your 401k administrator needs to accept the money into the plan.

BTW
One nice benefit of having your money in a 401k is that you can retire at age 55 - if your company's allows it. But you have to retire exactly at age 55 and you have to still be employed by the company at that age.

 

[kaneohe]

Well, this was my thinking. Right now becaue of my income I am inellgible to convert my traditonal IRA to a Roth IRA. My understanding is that in 2010, the income limitation goes away, and I can make the conversion and spread any taxe payment due over two years. If I were able to move the pre-tax part of my IRA to my 401-K, all I would have left in my IRA would be post tax money. Bascially, I was hoping to virtually eliminate/reduce any tax consequence to making the conversion by moving the taxable part of the IRA (Pre tax contributions and earnings) to my 401-K. So I would lose the benefits of converting everything to the Roth, but gain the beneift of not having to pay taxes on the pre-tax money I was converting. That was my idea anyway.

Seems like a good strategy. Now all you have to do is get past step 1.
Good luck! You might try asking on the irahelp.com forum also.

 

[packrat44]

I understand what you desire to do and it appears proper. Before you move all your pre-tax IRA funds to your employer's 401k, you may want to look at the total amount you would like to convert to a RIRA in 2010. It may be beneficial to leave some of your pre-tax IRA funds with the post-tax IRA funds if you want to convert more in 2010. Yes it would require some taxes to be paid in 2011 and 2012, but it may be cheaper tax-wise than paying later. Once any funds go into a 401k you can not decide later to convert them to a RIRA unless you leave the company.