Do You Know This 401(k) Rollover Rule?
This was a new one to me. I learned another weird IRS rule today. This one was about 401(k) rollovers and after-tax contributions.
A couple of months ago, I changed jobs. Today I called the my old employer’s 401(k) plan administrator, Fidelity. The man assigned to help me with the disposition of my 401(k) was very helpful, especially with my somewhat complicated situation.
My now-former employer allowed Roth 401(k) contributions beginning last year and I took advantage of the opportunity. (Incidentally, I highly recommend taking advantage of the Roth 401(k) if you’re offered it.) Several years ago, I screwed up at the end of the year and didn’t shut off my 401(k) contribution in time. I hit the limit for that year but money kept coming out of my paycheck and was contributed after tax.
So I had three sources of funds for the rollover:
- Traditional before-tax
- After-tax Roth
- After-tax non-Roth.
So this wasn’t a straightforward rollover. The guy helping me actually had to get help from another guy who knew the rules a little better.
Here’s where the weird IRS rule comes in. If your (joint) AGI is below $100,000, you can have the after-tax non-Roth funds rolled over as a current year Roth IRA contribution.
Our income this year is slightly over that amount, so the rule is I can’t have a check made out to USAA (the place I’m having the money from Fidelity sent to) directly as a 2008 Roth IRA contribution. What I have to do is have the check made out to me and then send it to USAA.
In fact, I could do whatever I want with the money since I’ve already paid taxes on it, but using it toward this year’s Roth IRA sounded like a good idea. Trouble is I can’t do that in one easy step.
Like I said, weird rule.
February 23rd, 2008 at 12:19 pm
That doesn’t sound right. I’d double check and make sure you find the IRS rule backing up this info you got from fidelity.
February 25th, 2008 at 7:51 am
I can’t say; that’s just what Fidelity told me.