Discussion:Why can't you rollover a Roth IRA to Roth 401k?
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Discussion Forum Index --> Tax Questions --> Why can't you rollover a Roth IRA to Roth 401k?
| 25 January 2007 | |
| Other than "because the rules say so". It seems a nonsense restriction: there's no obvious tax purpose to it, and Roth 401ks, unlike Roth IRAs, have RMDs. You'd think they'd *want* to encourage rollovers to Roth 401ks because some lazy or uninformed people won't roll back to an IRA to avoid RMDs. If they don't take RMDs like they're supposed to they'll owe penalties, if they do investment returns on distributions in excess of your living expenses become taxable, both of which are to the government's benefit. | |
| 25 January 2007 | |
| I don't think Congress would "want" to encourage such rollovers to the detriment of people. In any case, a rollover from a ROTH IRA to a ROTH 401(k) wouldn't make any sense (as I see it), since the RMD applies and there's probably less investment control. I can't see that many people willingly entering such a transaction. How many people do you see rolling their traditional IRA into a company 401(k)? :) | |
| 25 January 2007 | |
| I work with a pension administration firm (design, install,administer retirement plans) and I must say we have a few business owners who requested their 401(k) plan document allow for IRA transfers. Offering such allows for a participant to combine his/her retirement assets for simplicity in managing; in addition, if the plan allows loans, far more is available for borrowing. Lastly, the transferred IRA funds become protected in case of a future bankruptcy filing. | |
| 25 January 2007 | |
| The main reason for not allowing it is to avoid having to make up rules for how you determine accounting issues like aging (like, if the IRA has existed 5 years and the 401(k) has not, would the rolled-over funds be considered 5 years old or not). No, that's not a very compelling reason.
You can get most of the benefits of permitting incoming rollovers (other than loan availability and qualified plan bankruptcy protection) if the plan allows sidecar Roth IRAs. The advantage of 401(k)'s over IRA's in bankruptcy is not huge but it is something. IRAs are exempt to $1 million, plus the amount attributable to qualified plan rollovers, plus more if the "interests of justice" require. It's awfully hard to reach $1 million without counting rolled-in money. | |
| 28 January 2007 | |
| >The main reason for not allowing it is to avoid having to make up rules for how you determine accounting issues like aging
>(like, if the IRA has existed 5 years and the 401(k) has not, would the rolled-over funds be considered 5 years old or not). >No, that's not a very compelling reason. How true, especially since they already have such rules for 401k->IRA transfers. Account consolidation would be the primary point of an IRA->401k transfer. A secondary point is that debt-financed real estate in a 401k, unlike in an IRA, isn't subject to UBIT. | |
John of PA (talk|edits) said: | 28 January 2007 |
| A 401k is a trust (qualified plan) protected agains bankruptcy. An IRA is not. The law cannot allow becoming protected simply by rolling over unprotected money into a qualified plan. The funds must have been originally put into the 401k (trust) in a qualified transaction. An IRA rollover is not. If there was a way to roll over IRA funds into a 401k, those funds would never be protected from bankruptcy in a court of law. So my guess is the law does not allow such rollovers, as they would cause confusion and litigation in courts, tracing where 401k money came from. | |
