401kwithdrawl/traditional IRA rollover

[Guest ztcsmd]

Hello,

I have a question that I am having a hard time getting an answer for and thought I would run it by--

I currently have a 401k account valued @ 200K and of that there is 19k in after tax dollars. I have contacted the administrators and was told that the plan allows for partial withdrawls and in order to get the 19k I would have to take 35k (19k in afer-tax and 16k in pre-tax)

I would like to roll this money into a traditional IRA (and understand that I would have a 16K tax event) and then convert to a Roth IRA.

The question is can I put both the pre-tax and after-tax dollars into the IRA since it is being distributed from a qualified plan? If so how do I report this on my tax returns.

Not trying to get the money but just trying to get it into a tax free growth vehicle with a minimal tax event.

Thanks for any responses

[Mary Kay Foss]

You can put the nontaxable part of your qualified plan into a Roth IRA but the taxation may be slightly more complicated. If the entire 35k is rolled to a traditional IRA and then that IRA is converted to a Roth, the amount of the conversion that is taxable depends on ALL IRAs that you have. If you have another traditional IRA (whether it was created with deductible or nondeductible funds), it must be considered in determining the taxability of the conversion.

The fact that the funds came from a qualified plan originally is not at all significant, only funds in a traditional IRA can be converted.

[Guest ztcsmd]

Mary

Thanks for your reply. I currently do not have any other traditional IRAs and the only reason I am starting a traditional IRA is for the distribution from the 401K and then the conversion of those monies to a Roth. I would like to do the entire 35K. I am single and my gross income is 60K. I fully fund my 401K and contribute fully annually to a Roth. I do not mind paying the taxes if all I have to pay is on the original 16K in pre-tax dollars that were distributed from the 401K. I am just wanting to make sure that this is the proper or legal way to do this. If not I would just leave these monies in the 401k. It just seems odd that I could take the 19K (in after tax monies) and going through this process get it into a Roth that would grow tax free.

Confused

Thanks

Sam

[John G]

The answer to complex questions posted here often lies in the details, and we find that some critical information may not be disclosed in the Q&A. I highly recommend that you use an accountant or tax advisor before completing the transaction to make sure that you get it done right. The modest amount of cost associated with getting expert advice is tiny compared to the major headache of losing your tax shelter or having a tax surprise.