Another ROTH Conversion Question

[street]

First, I apologize and pretty sure this question has been asked and talked about many times. I went back to a few old threads and couldn't find the question.

I have a 401K with one company, and they don't do ROTH conversions. So, when I do a conversion, should that financial company just send the conversion check right to the new company directly or do they send the check to me than I take the check to the new company?

What is the proper flow of a transaction when conversion is done with different company.

Thanks

 

[SevenUp]

By "company" do you mean
a) the ex-employer who had the 401k plan you used, or
b) the brokerage that administers the 401k plan?

Does your ex-employer's plan (assuming it is an ex-employer, not a current employer - correct?) allow for partial withdrawals or is it all or nothing?

It is unusual that a brokerage would not allow a Roth conversion. In general it is best if nothing goes to you, but rather is transferred directly from one brokerage to the other.

 

[MarieIG]

Hi Street,

Unless you already have another 401k that will accept a transfer, I believe that you need to "rollover" the 401k directly to an IRA. You can choose to do a partial rollover if you would like; or a complete rollover of all funds from the 401k to the IRA. After the IRA has been established, you can then convert as much as you wish to a Roth IRA (keeping in mind that that you will pay income tax for the conversion so you may want to spread out conversions over several years.)

I would go to the company which you want to hold the IRA (for example Schwab or Fidelity)- and have them help you with the necessary forms to enable them to pull the funds out of the 401k and transferred directly into your new IRA account.

 

[street]

So, this 401K is from an ex-employer, and they don't do conversions to their ROTH IRA's. Where I want to start a ROTH IRA is with another financial company. I'm just in early stages of the process and will talk tomorrow with the ex-employer which holds the 401K and the new place I want to start the ROTH IRA with. I have talked to already but been playing phone tag where I want the ROTH at today.

 

[MarieIG]

So, this 401K is from an ex-employer, and they don't do conversions to their ROTH IRA's. Where I want to start a ROTH IRA is with another financial company. I'm just in early stages of the process and will talk tomorrow with the ex-employer which holds the 401K and the new place I want to start the ROTH IRA with. I have talked to already but been playing phone tag where I want the ROTH at today.

Good. Get info from your ex-employer but it's usually best to have the funds transferred directly to the new financial company/ broker. The transfer of the 401k funds directly to the new financial company/ broker for a traditional IRA should not be a taxable event. (If a check is sent to you and for some reason floats around too long before being deposited into your new IRA, that could be a problem.) The company where you want the money should set up your new account, and know how to pull it out. After it arrives in the new IRA / account, then you can start your conversion(s) to a Roth.

 

[Dash man]

Sounds like you should roll over into a tIRA, then set up a Roth for conversions. Talk to the plan administrator to find out what they can do and speak to the brokerage you ultimately want the funds to end up with.

 

[street]

Good. Get info from your ex-employer but it's usually best to have the funds transferred directly to the new financial company/ broker. The transfer of the 401k funds directly to the new financial company/ broker for a traditional IRA should not be a taxable event. (If a check is sent to you and for some reason floats around too long before being deposited into your new IRA, that could be a problem.) The company where you want the money should set up your new account, and know how to pull it out. After it arrives in the new IRA / account, then you can start your conversion(s) to a Roth.

Thank you very much!! I know the best would be what you recommend doing a 401K roll over to an IRA. The only IRA I have I don't want to increase that amount and have all my accounts with the one company.

Thank You and that is what I thought just like a roll over I would want those funds to go directly to the new company and with proper forms filled out for ROTH IRA.

 

[SevenUp]

Note that Roth is a name, not an acronym.

 

[Love This Community]

Street, I recently consolidated my 401k’s from my 2 ex employers with 2 different brokerages into my current employer 401k. Current employer brokerage rep was very helpful in walking me through the process.

One broker sent the check directly to receiving brokerage. Another broker sent the check to me instead of transferring directly to the receiving brokerage. Throughout the process, receiving brokerage rep was with me during the calls, helping with necessary documentation and following up periodically to ensure checks are not lost.

I would highly recommend that you speak with the broker representative and see if they can help you with the process. All the best!

 

[street]

I will also be visiting with my account also for a safe amount for tax bracket I want to stay in.
I did a quick number check and at RMD age and amount I would need to take it would account for about 1% of my portfolio. It would add 1% to my expenses and I don't feel that is to bad. Not good but I may not do anything with conversions. I'm in early stages on what I need to do.

 

[UpQuark]

I don't know if it would be feasible for you, but the most recent time I rolled over a 401k to a traditional IRA, instead of filling out forms the destination person (at Fidelity) conferenced in (on the phone) the 401k administering person (at Merrill Lynch) and they handled it all with just me giving a verbal confirmation that it was what I wanted. Much easier than filling out forms.

 

[street]

I don't know if it would be feasible for you, but the most recent time I rolled over a 401k to a traditional IRA, instead of filling out forms the destination person (at Fidelity) conferenced in (on the phone) the 401k administering person (at Merrill Lynch) and they handled it all with just me giving a verbal confirmation that it was what I wanted. Much easier than filling out forms.

True, that would be the way to do it. I know the place I want to open the Roth will be all for that. I will get a little more info on procedure from the 401K hold tomorrow.

 

[MarieIG]

Thank you very much!! I know the best would be what you recommend doing a 401K roll over to an IRA. The only IRA I have I don't want to increase that amount and have all my accounts with the one company.

Thank You and that is what I thought just like a roll over I would want those funds to go directly to the new company and with proper forms filled out for ROTH IRA.

Your IRAs don't have to be with the same entity. Is your 401k a Roth 401k or a traditional 401k (i.e. the funds were taken out of your salary/ earnings pre-tax, and allowed for you to reduce your income the year you paid into it)? This makes a difference.

As an aside, I have a traditional IRA with Vanguard, a Roth IRA with Vanguard (I'm working on conversions but it will take a few years to get it done due to the conversions triggering Federal and State taxes); a traditional IRA over at Fidelity which was born as a result of a 60 day rollover - and a teeny, tiny Roth over at Fidelity which I transferred over from Vanguard (retaining the majority of Roth funds over at Vanguard) for the purpose of setting up a new account without a further conversion - although that may change.

I am glad to see that you are consulting your accountant. I would suggest that you do this prior to making the transfer - and show him the paperwork (if that is possible).

 

[street]

MarieIG, thank you again for your excellent advice and other avenues you gave me.

Today, I contacted both parties involved, and the best scenario is to roll over the 401K to an IRA with new company. Then once everything is rolled over in a money market account with them, then I will allocate to my choices of funds. I than will do a Roth from those accounts.

The process will be so much smoother and a better flow dealing with one company.

They said the way I wanted to do it I would be only allowed 7500$ a year for a Roth conversion. I need to do a lot more than that to make a difference.

So, the processes is started to get 401K rolled over just waiting to forms to fill out and signed and sent back.

 

[MarieIG]

MarieIG, thank you again for your excellent advice and other avenues you gave me.

Today, I contacted both parties involved, and the best scenario is to roll over the 401K to an IRA with new company. Then once everything is rolled over in a money market account with them, then I will allocate to my choices of funds. I than will do a Roth from those accounts.

The process will be so much smoother and a better flow dealing with one company.

They said the way I wanted to do it I would be only allowed 7500$ a year for a Roth conversion. I need to do a lot more than that to make a difference.

So, the processes is started to get 401K rolled over just waiting to forms to fill out and signed and sent back.

Wonderful Street!

 

[RetiredAndLovingIt]

MarieIG, thank you again for your excellent advice and other avenues you gave me.

Today, I contacted both parties involved, and the best scenario is to roll over the 401K to an IRA with new company. Then once everything is rolled over in a money market account with them, then I will allocate to my choices of funds. I than will do a Roth from those accounts.

The process will be so much smoother and a better flow dealing with one company.

They said the way I wanted to do it I would be only allowed 7500$ a year for a Roth conversion. I need to do a lot more than that to make a difference.

So, the processes is started to get 401K rolled over just waiting to forms to fill out and signed and sent back.

$7500 sounds more like a Roth contribution than a conversion.

https://www.fidelity.com/learning-c...t=Key takeaways,dictated by your income level.

You should be able to convert as much as you want to each year

 

[street]

$7500 sounds more like a Roth contribution than a conversion.

https://www.fidelity.com/learning-c...t=Key takeaways,dictated by your income level.

You should be able to convert as much as you want to each year

True, I might have heard him wrong too and I believe what I researched there wasn't a limit on amount.

Thanks for everyone's help and guidance.

 

[Spock]

$7500 sounds more like a Roth contribution than a conversion.

https://www.fidelity.com/learning-c...t=Key takeaways,dictated by your income level.

You should be able to convert as much as you want to each year

OP was trying to "convert" while bridging between two custodians.
From the perspective of the source custodian, the conversion is just a withdrawal as they don't know what is being done at the other institution. From the destination perspective it's taxable money coming in with no visibility that it came out of an IRA... it looks like a new contribution.
Even if the two institutions managed to exchange enough info to create a conversion spanning two companies, I wouldn't trust the process to work every time. Consolidating the source and destination accts at 1 institution makes the conversion a no-brainer.

 

[street]

OP was trying to "convert" while bridging between two custodians.
From the perspective of the source custodian, the conversion is just a withdrawal as they don't know what is being done at the other institution. From the destination perspective it's taxable money coming in with no visibility that it came out of an IRA... it looks like a new contribution.
Even if the two institutions managed to exchange enough info to create a conversion spanning two companies, I wouldn't trust the process to work every time. Consolidating the source and destination accts at 1 institution makes the conversion a no-brainer.

Rolling everything over to one institution will make for a clean transaction to Roth conversion. Thanks

One more question. What AA do you do in a Roth IRA for AA? I think I will go 80/20 but wondering if 100% would be better. Not planning on using the Roth account in my lifetime.