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Company Bought out, being forced to move small 401k. Limited options, please advice!

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  • Company Bought out, being forced to move small 401k. Limited options, please advice!

    Due to a corporate buy-out I am being forced to move a small 401k amount from my prior employers 401k plan.
    My only options are;
    1. Cashout
    2. Roll into IRA

    My question is as follows: I have already completed a backdoor Roth IRA conversion this year. All of my IRA money is currently in a Roth IRA. Can I roll this money into a traditional IRA ( the account I use to convert to Roth IRA) without Penalty? Then use this money for 2022 Roth Conversion?

    My new employer is not offering a 401k to move it into.

    Thanks for all of your advice!



  • #2
    Originally posted by hoosier View Post
    Due to a corporate buy-out I am being forced to move a small 401k amount from my prior employers 401k plan.
    My only options are;
    1. Cashout
    2. Roll into IRA

    My question is as follows: I have already completed a backdoor Roth IRA conversion this year. All of my IRA money is currently in a Roth IRA. Can I roll this money into a traditional IRA ( the account I use to convert to Roth IRA) without Penalty? Then use this money for 2022 Roth Conversion?

    My new employer is not offering a 401k to move it into.

    Thanks for all of your advice!

    well there is no penalty, but I think what you're getting at is would you pay pro rata tax on the Roth conversion, if you have a nonzero pretax IRA balance 12/31/21, and the answer is Yes.

    did they give you a deadline? I might just drag my feet and do the rollover after 1/1.

    Comment


    • #3
      alternatively if its a small amount you could just rollover now and convert to Roth and pay the tax, at your marginal tax rate.

      Comment


      • #4
        Originally posted by jacoavlu View Post

        well there is no penalty, but I think what you're getting at is would you pay pro rata tax on the Roth conversion, if you have a nonzero pretax IRA balance 12/31/21, and the answer is Yes.

        did they give you a deadline? I might just drag my feet and do the rollover after 1/1.
        Thank you, the deadline is set at 1/17/2022. I will plan on dragging my feet until next year. The plan will then be to transfer the money to my traditional IRA and then convert it to Roth. Is this a sound plan?
        Thanks again for your help.

        Comment


        • #5
          Originally posted by hoosier View Post

          Thank you, the deadline is set at 1/17/2022. I will plan on dragging my feet until next year. The plan will then be to transfer the money to my traditional IRA and then convert it to Roth. Is this a sound plan?
          Thanks again for your help.
          As long as you can handle the taxes that will be owed on the conversion, it is a very sound plan (as long as the conversion is allowed; that is likely to be income-dependent, and as the legislation dictating this hasn't passed yet, there's no knowing for certain if the Roth conversion will be possible).

          Comment


          • #6
            Originally posted by hoosier View Post

            Thank you, the deadline is set at 1/17/2022. I will plan on dragging my feet until next year. The plan will then be to transfer the money to my traditional IRA and then convert it to Roth. Is this a sound plan?
            Thanks again for your help.
            sound plan as long as your marginal tax rate 2022 will not be greater than 2021.

            Comment


            • #7
              Originally posted by hoosier View Post

              Thank you, the deadline is set at 1/17/2022. I will plan on dragging my feet until next year. The plan will then be to transfer the money to my traditional IRA and then convert it to Roth. Is this a sound plan?
              Thanks again for your help.
              If you are going to convert the 401k to Roth anyways, it shouldn’t make any difference if you do it now (before 12/31] or after as long as your marginal tax brackets are the same. 12/31/21 tIRA value would be zero either way. From your original post, you may be mixing up the concept of conversion of 401k to Roth (a taxable event because of the pre-tax $) with the BDR (non-taxable since the conversion is of after-tax contributions).

              Comment


              • #8
                There is no need to complicate the traditional IRA by rolling over from the 401k, to only later do a Roth conversion. You can and should do a direct taxable rollover from the 401k to a Roth IRA. Don't let them tell you that you only have the two options you listed. Under IRS regulation 26 CFR § 1.401(a)(31)-1 - Requirement to offer direct rollover of eligible rollover distributions; questions and answers., they must allow a direct rollover to a Roth IRA.

                Comment


                • #9
                  what about getting enough side gig income to roll into a solo 401K, then you have increased flexibility?

                  Comment


                  • #10
                    Originally posted by spiritrider View Post
                    There is no need to complicate the traditional IRA by rolling over from the 401k, to only later do a Roth conversion. You can and should do a direct taxable rollover from the 401k to a Roth IRA. Don't let them tell you that you only have the two options you listed. Under IRS regulation 26 CFR § 1.401(a)(31)-1 - Requirement to offer direct rollover of eligible rollover distributions; questions and answers., they must allow a direct rollover to a Roth IRA.
                    This makes sense, but isn't that the same move as just cashing it out and putting a more even (6,000) into my Roth IRA through the back door?

                    Comment


                    • #11
                      You were the one who said you wanted to do a Roth conversion. You can do both. Rollovers have no impact on IRA contribution limits.

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