Roll out, pay tax, roll back in?

[Lori H]

A 63 year old active participant is inquiring as to the possibility of rolling out his assets into an ira, paying taxes, and then rolling it back into the plan as roth 401(k) money. The plan has ROTH provisions, but does not allow for in service distros.

Has anyone had experience with such a transaction?

Thanks

[rcline46]

No can do. Cannot roll an ROTH IRA into a Qualified plan even if it has a ROTH feature.

[Kimberly S]

I'm confused. I'm looking at the handout from a PPA seminar that clearly state that basis (which is defined as after-tax contributions, repaid deemed distributions and Roth) can be rolled over. Was the seminar presenter wrong?

[rcline46]

If the participant takes a distribution into a personal account and pays taxes, that is not an IRA account and not a ROTH account, it is clearly not eligible to rolled into a qualified plan. This is the situation you originally posited.

In the sources that are acceptable to be rolled into a qualified plan, an IRA may be rolled in, and under PPA, non-deductible IRA contributions may be included in the roll in. However, the rules also clearly state that you may roll an ROTH account from one plan to another, but that you cannot roll a ROTH IRA into a qualified plan, even if it originally came from a qualified plan.

[masteff]

However, the rules also clearly state that you may roll an ROTH account from one plan to another, but that you cannot roll a ROTH IRA into a qualified plan, even if it originally came from a qualified plan.

The place that's stated is in IRS Pub 590 on page 65 under "Rollover From a Roth IRA".

[Lori H]

I don't think he can do it either, just want to make sure every scenario is covered. if he rolls it into a straight trad. IRA, pays taxes on it, then rolls it back into the plan?????? seems as if I read something that a participant could pay the taxes on his/her pre tax deferral 401(k) balance and then treat the remainder as ROTH 401(k) ultimately taking the remainder out tax free.

perhaps I read it in a dream

[rcline46]

I think you got VERY confused on a process. Prior to 2008, you could roll a distribution into an IRA, then CONVERT the IRA to a ROTH IRA and pay the taxes as if (because it was) the IRA was distributed.

Starting in 2008, due to PPA, that can be done in one step - ie a direct rollover (taxable) into a ROTH IRA. However, you cannot then roll the ROTH IRA into a ROTH 401(k)/403(b). YOu can only roll a regular IRA into a non-ROTH rollover account in a qualifed plan.