Rollover to Roth IRA?

[Guest gte118f]

Hello! I have recently changed jobs, leaving a job that I had been at for 3 years. It was a state government job, and I was required to contribute after-tax earnings to a retirement fund for the time I was employed. While preparing to make the transition to my new position as a federal employee, I called the retirement fund management group and asked what the procedure was for rollover or refund of the amount, and if it were possible for me to roll over the amount into my rollover-designated Roth IRA (I already had one open from a few years ago). They told me that for people employed 5 years or less, the amount could only be refunded. With no other choice, I filled out the refund application on my final day. Last week, I received the refund check, and have yet to deposit it. I was wondering if it would be possible for me to simply deposit that check into my existing rollover-designated Roth IRA. If it is possible, how do I go about doing it? Thanks in advance for any insight you might have.

[Mary Kay Foss]

You can only rollover IRA funds to a Roth, Qualified Plan funds aren't eligible.

First you must establish a traditional IRA. Once the funds are there, a Roth rollover is possible.

[Guest gte118f]

Thanks for the reply. Ok. So, to verify: going from after-tax retirement fund to Roth IRA is not permitted, correct? So, would that a good thing for me to consider....going from my after-tax contributions retirement fund to a Traditional IRA to a Roth IRA? Or would that mean that my money was double-taxed? Or should I consider a regular mutual fund? Hmmm....it's diffucult to weigh out all the options. Any recommendations? I'm open to suggestion. Thanks again.

[Mary Kay Foss]

When funds are transferred from you Qualified Plan to the traditional IRA, that's a nontaxable rollover. When you convert from the traditional IRA to a Roth, it is taxable. When you have basis in the traditional IRA from after-tax contribs to the Qualified Plan or nondeductible IRA contributions you use Form 8606 to see how much of the conversion is taxable.

When you make the 8606 calculation you consider ALL traditional IRAs not just the one that is being converted to Roth.

[Appleby]

gte118f,

…since this is after the fact it may not matter to you anymore, but I’m curious to know what type of “retirement fund” did you contribute to? Was it a 403(b), 401(k), Thrift…were you also allowed to contribute pre-tax amounts? I ask because it seems very unusual for a plan to refuse to allow you to rollover the assets to an IRA. If my memory serves me right, one of the rules a plan administrator must follow is to provide participants the option of rolling over their retirement plan assets. From what I recall, the options must be provided to the participants in writing, which should include an explanation of the tax treatment of distributions, including those rolled over and not rollover over.

[John G]

Employee plans normally have some kind of master document that spell out all the procedures: roll overs, early withdrawals, loans, investment options, vesting schedule, etc. This document will often cite the legislation or IRS code underwhich they operate - which would help clarify what kind of plan it was.

I wonder if they just issue a check if the amount is below some threshold for their own administrative ease. Then again, maybe this is not exactly a normal type of retirement program or the original post missed the key words to explain their problem. Perhaps they will post again.