Transferring 401 with traditional and Roth

[bizlady]

Maybe someone can help or reassure me here. DD has a 401K from a previous employer that has a traditional and Roth component- she has money in both.

She wants to transfer it to Vanguard. How does she accomplish this while maintain the separation between the accounts. Her old employer says the whole thing just rolls over. Vanguard says it will just rollover to the account she designates. But technically, part needs to go to a Roth and part to a deferred account. What are we missing?

She is already in a high tax bracket so we do not want to trigger a taxable event.

 

[jazz4cash]

The pre-tax monies should go into a traditional IRA and the Roth 401k monies should go into a Roth IRA. I have a similar situation at Fidelity and they assured me it would not be an issue if/when I move funds out of the 401k. Ask Vanguard (preferably) or the current custodian and make sure they are aware of your situation and concerns.

 

[pb4uski]

I wonder if there is a miscommunication going on somewhere. I would think that the traditional tax-deferred 401k would rollover to a traditional tax-deferred IRA and the tax-free Roth 401k would rollover to a Roth IRA.

Perhaps she can do one and then once the transfer is complete do the other. IOW, two separate rollover paperwork...one for traditional and another for the Roth.

Have her talk with Vanguard again.... what you wrote doesn't sound right.

 

[MRG]

I wonder if there is a miscommunication going on somewhere. I would think that the traditional tax-deferred 401k would rollover to a traditional tax-deferred IRA and the tax-free Roth 401k would rollover to a Roth IRA.

Perhaps she can do one and then once the transfer is complete do the other. IOW, two separate rollover paperwork...one for traditional and another for the Roth.

Have her talk with Vanguard again.... what you wrote doesn't sound right.

+1

That's what Vangaurd did for us. No problem. Communication is the key.

 

[jazz4cash]

I wonder if there is a miscommunication going on somewhere. I would think that the traditional tax-deferred 401k would rollover to a traditional tax-deferred IRA and the tax-free Roth 401k would rollover to a Roth IRA.

Perhaps she can do one and then once the transfer is complete do the other. IOW, two separate rollover paperwork...one for traditional and another for the Roth.

Have her talk with Vanguard again.... what you wrote doesn't sound right.

.

Good suggestions for a workaround. A quick review of the Vanguard website suggests that they will accommodate a 401k rollover into Roth and traditional IRAs.

https://investor.vanguard.com/401k-rollover/ira-choices

 

[RunningBum]

.

Good suggestions for a workaround. A quick review of the Vanguard website suggests that they will accommodate a 401k rollover into Roth and traditional IRAs.

https://investor.vanguard.com/401k-rollover/ira-choices

That page doesn't explicitly say that they will handle the combined account, and roll part of it into a Roth, and part into a traditional. They just say they handle both types of rollover, but not clear that you can do both from one account. I assume you can, but that page wouldn't give me any comfort.

I'm watching this because my son has the same type of 401K setup, as I wrote in http://www.early-retirement.org/forums/f28/401k-and-roth-401k-in-same-account-issues-89503.html . There is some discussion in that thread about what happens in a rollover.

 

[jazz4cash]

That page doesn't explicitly say that they will handle the combined account, and roll part of it into a Roth, and part into a traditional. They just say they handle both types of rollover, but not clear that you can do both from one account. I assume you can, but that page wouldn't give me any comfort.

I'm watching this because my son has the same type of 401K setup, as I wrote in http://www.early-retirement.org/forums/f28/401k-and-roth-401k-in-same-account-issues-89503.html . There is some discussion in that thread about what happens in a rollover.

I agree it doesn't say explicitly how they handle both types of account, but it was a quick search of vanguard.com as I indicated. There are several other implied statements if you look around on their website......

For example:
What you can do

• Roll over a traditional 401(k) into a traditional IRA, tax-free.
• Roll over a Roth 401(k) into a Roth IRA, tax-free.
• Roll over a traditional 401(k) into a Roth IRA—this would be considered a "Roth conversion," so you'd owe taxes.

Learn more about Roth conversions
What you can't do

• Convert a Roth 401(k) to a traditional IRA.

That leads back to the suggestion to call them up and verify what is being communicated and making sure the source of the funds (Roth vs. Pre-Tax) is adequately identified by the current custodian or possibly making two separate rollovers if partial withdrawals are permitted.

Whenever I withdraw funds from my 401k at Fidelity they are very careful to distinguish between Roth and Pre-Tax. They told me I could roll the Roth 401k directly to a Roth IRA, but my plan is very flexible and YMMV.

 

[RunningBum]

I agree it doesn't say explicitly how they handle both types of account, but it was a quick search of vanguard.com as I indicated. There are several other implied statements if you look around on their website......

OK. I took your post to mean that you were able to find the answer with a quick search, and took exception because it's not clearly an answer to the question asked.

The OP says "Vanguard says" so I assume they've already talked with someone, but it sounds like more follow-up is needed. Perhaps the OP can elaborate on who at VG said what?

I also hope the OP comes back with the final resolution, because my son will eventually be facing this, and VG would almost certainly be the final destination, unless they can't do this and another place will.

 

[meierlde]

Recall that in addition with a 401k it is possible to have after tax money in the regular 401k as well as in a roth 401k. When I rolled my 401k over from vanguard to a vanguard IRA, they paid the aftertax money to my brokerage account (just a very small sum), and the rest to the rollover traditional ira. (since I retired in 2004 there was no such thing as a roth 401k) So the 401k custodian kept track of the amount of post tax money you put in (possibly due to hitting various limits of contributions), but the earnings on that money were treated as the rest of earnings on the 401k. With older 401ks it is possible that there are also some post tax contributions in the mix. Your statement should tell you the amount from each source (pre and post tax are different sources).

 

[gauss]

If the old employer plan will allow partial distributions, why not do an experiment the first year and rollover a small amount - say $1,000 of each?

This was you can verify the end to end process and hopefully not trigger a large tax bill on the entire amount, or some other bad outcome, if there is a misunderstanding.

-gauss
p.s. I hope there is a good specific reason that you are advising DD to roll out of the old 401k (ie high feeds, no index funds etc). 401ks can have advantages over IRAs.

 

[RunningBum]

If the old employer plan will allow partial distributions, why not do an experiment the first year and rollover a small amount - say $1,000 of each?

This was you can verify the end to end process and hopefully not trigger a large tax bill on the entire amount, or some other bad outcome, if there is a misunderstanding.

-gauss
p.s. I hope there is a good specific reason that you are advising DD to roll out of the old 401k (ie high feeds, no index funds etc). 401ks can have advantages over IRAs.

A trial rollover is a good idea if allowed.

I'd look at the rollover the other way, that there should be a specific reason NOT to do it (like a specific fund you want, or using the rule of 55), else you should roll it over, especially the Roth part. Roth 401Ks have RMDs, so you almost certainly want to roll it over. And since the 5 year clock for tax and penalty free distribution doesn't carry over from the Roth 401K to the Roth IRA, so you probably want to do it sooner than later. And I don't think the traditional 401K can be converted to a Roth unless it's rolled over to an IRA.

 

[bizlady]

Thanks all. She will call Vanguard again. It was a supposed retirement specialist the first time, but what was said made no sense. Will also make a call to the former employer administrator as well this time. There has to be some solution to this.....

 

[jazz4cash]

Thanks all. She will call Vanguard again. It was a supposed retirement specialist the first time, but what was said made no sense. Will also make a call to the former employer administrator as well this time. There has to be some solution to this.....

Please let us know how it goes. Should be helpful for many of us.

 

[Animorph]

I had that problem with DW's 401k, both regular 401k and Roth 401k in essentially one account. I wanted to take partial withdrawals so I wan't completely out of the market.

With the first withdrawal they couldn't separate the regular from the Roth, we had to take a little of both and roll the entire amount into one account at Fidelity. I talked to several levels of managers on the 401k customer support line and told them how stupid it was that I couldn't rollover the Roth 401k to a Roth IRA, but no help for it.

I ended up rolling over the combined withdrawal into a Roth IRA. Then I recharacterized the normal 401k amount into a traditional IRA. Two normal things I could do online. That worked fine. Fido said I could also roll it over into any kind of IRA and then call them and have them split it between tIRA and Roth IRA any way I wanted. But that just seemed riskier.

After the first withdrawal, the 401k changed policies and allowed one withdrawal that could be mixed or all normal 401k or all Roth 401k, rolled over into one IRA. I was able to roll over the 401k accounts into the corresponding IRA's without the extra step.

 

[retire2020]

I was in similar situation at Fidelity but they had tracked which was after tax 401K and which was pretax 401K. I had an option to contribute to both - 401K and Roth 401K. I had kept Pretax and Roth 401K invested into different fund so every year at year end I would call Fidelity and ask them sell Roth 401K fund and rollover to Roth IRA. It was quick, easy and hassel free with Fideilty but not sure about Vanguard. Both my account are at Fidelity.

 

[GalaxyBoy]

I had a 401(k) with both traditional and Roth contributions in it. When I retired they rolled over the correct amounts to my traditional and Roth IRAs with no problem. The 401(k) was with Principal; the IRAs are with Schwab.

 

[RunningBum]

Do gains on your Roth 401K get rolled over to the Roth IRA, or just the original contributions, with gains going to a tIRA? I thought I saw something about only the contributions, but that doesn't really make sense to me, and I can't find it again.

 

[meierlde]

Do gains on your Roth 401K get rolled over to the Roth IRA, or just the original contributions, with gains going to a tIRA? I thought I saw something about only the contributions, but that doesn't really make sense to me, and I can't find it again.

That applied to after tax contributions to my 401k when the roth 401k was just a dream. The corp allowed to to contribute after tax if you reached the limit, or for other reasons. The statements kept track of this, and when the 401k was rolled over vanguard moved the post tax contributions to my brokerage money market fund. (apparenlty not all 401ks included the chance to do after tax contributions)

 

[MRG]

Thanks all. She will call Vanguard again. It was a supposed retirement specialist the first time, but what was said made no sense. Will also make a call to the former employer administrator as well this time. There has to be some solution to this.....

Thanks for the update. While it shouldn't be necessary, escalation to a supervisor isn't a bad thing to do.

 

[Badger]

I may not be understanding quite correctly but the dollars from a tIRA and a Roth IRA are not mixed since one is pre and the other is post tax when contributed to. They are in her name but should be in separate accounts. The easy solution for her peace of mind that they would not be mixed or create a tax problem is to move them to Vanguard with separate transfer paperwork and maybe even on separate days. Vanguard can open the tIRA and Roth IRA accounts to prepare for the transfer.

Cheers!

 

[jazz4cash]

Do gains on your Roth 401K get rolled over to the Roth IRA, or just the original contributions, with gains going to a tIRA? I thought I saw something about only the contributions, but that doesn't really make sense to me, and I can't find it again.

As I understand this, the gains get rolled over along with the contributions.

 

[RunningBum]

As I understand this, the gains get rolled over along with the contributions.

That almost has to be, doesn't it? Otherwise it makes no sense to do this, because the gains would be taxed as ordinary income when withdrawn, instead of capital gains if you just put the money in a taxable account.

As I recall, my son gets a match on the first 3% for each of regular 401K and Roth 401K, so that's what he's putting in.

 

[Animorph]

Do gains on your Roth 401K get rolled over to the Roth IRA, or just the original contributions, with gains going to a tIRA? I thought I saw something about only the contributions, but that doesn't really make sense to me, and I can't find it again.

Strangely enough (stupid Hewitt 401k) I couldn't tell. The only info I ever had was the total dollars in the Roth 401k. All investments were made with no choice about Roth/normal 401k. Same with sales and for a while same with withdrawals. The Roth portion never grew very much, but I never knew if it was invested proportionately in all my funds or just one or a few funds. I was using a brokerage window, possibly a complication for them. The end result was very little if any growth that I noticed for the Roth portion, despite decent gains in the account as a whole. I think it was very shoddily run. I got everything over to Fido as soon as DW retired.

 

[jazz4cash]

That almost has to be, doesn't it? Otherwise it makes no sense to do this, because the gains would be taxed as ordinary income when withdrawn, instead of capital gains if you just put the money in a taxable account.

As I recall, my son gets a match on the first 3% for each of regular 401K and Roth 401K, so that's what he's putting in.

No, I don't think it is the only way it makes sense, but I would expect the gains could stay in the Roth 401k and continue to grow tax free until withdrawal. That might actually be worthwhile if the Roth 401k funds have already met the 5 yr timeout. This is what stopped me from completing a rollover. Funds that are rolled over will reset the clock to match the Roth IRA timeout. I read the Kitces article several times and a lot of the rules still don't make sense to me.