Rollover from traditional to rollover IRA

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Topic Author
Ostentatious
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Rollover from traditional to rollover IRA

Post by Ostentatious »

I am facing a unique problem and don’t seem to get any answers. Because I no longer qualify fort Roth IRA contributions directly, I wanted to do a back door Roth. But because I have one IRA open with about 5% of my assets in it, I wanted to rollover that amount into my current employers 401K before doing the back door. I liquidated the IRA from Vanguard and was ready to send to my current employer’s 401K but just as I was going through the questionnaire, I noticed that my current employer’s 401K will not accept rollovers from a Traditional IRA (even though they told me otherwise when I initially inquired). They will only accept from a Rollover IRA. Anyway, I contacted Vanguard about it because my IRA with vanguard should actually have been a rollover IRA since the money was from a previous employer profit sharing plan after the business was sold. Vanguard will not change the type of account from Traditional to Rollover IRA. They have suggested opening a new rollover IRA and depositing the check from the Traditional IRA into the new rollover IRA account but I should research any tax implications myself. I have never heard about a rollover from Traditional to Rollover. Is there anything like that or would I create a taxable event if I did that?
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ResearchMed
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Re: Rollover from traditional to rollover IRA

Post by ResearchMed »

Ostentatious wrote: Wed Jul 28, 2021 3:06 pm I am facing a unique problem and don’t seem to get any answers. Because I no longer qualify fort Roth IRA contributions directly, I wanted to do a back door Roth. But because I have one IRA open with about 5% of my assets in it, I wanted to rollover that amount into my current employers 401K before doing the back door. I liquidated the IRA from Vanguard and was ready to send to my current employer’s 401K but just as I was going through the questionnaire, I noticed that my current employer’s 401K will not accept rollovers from a Traditional IRA (even though they told me otherwise when I initially inquired). They will only accept from a Rollover IRA. Anyway, I contacted Vanguard about it because my IRA with vanguard should actually have been a rollover IRA since the money was from a previous employer profit sharing plan after the business was sold. Vanguard will not change the type of account from Traditional to Rollover IRA. They have suggested opening a new rollover IRA and depositing the check from the Traditional IRA into the new rollover IRA account but I should research any tax implications myself. I have never heard about a rollover from Traditional to Rollover. Is there anything like that or would I create a taxable event if I did that?
Are you trying to get the money into that 401k so that you can do a back door into a Roth?
If so, why not just convert money from the non-Roth IRA into the Roth IRA?

RM
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02nz
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Re: Rollover from traditional to rollover IRA

Post by 02nz »

Strange, my understanding has always been that a rollover IRA and traditional IRA are really the same thing. Regardless, if you open a new rollover IRA and deposit the funds there for transfer into the 401k, there should not be any tax consequences.
02nz
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Re: Rollover from traditional to rollover IRA

Post by 02nz »

ResearchMed wrote: Wed Jul 28, 2021 4:01 pm Are you trying to get the money into that 401k so that you can do a back door into a Roth?
If so, why not just convert money from the non-Roth IRA into the Roth IRA?

RM
The OP has a tax-deferred balance in a traditional IRA, which interferes with the backdoor Roth because of the pro-rata rule, hence the desire to move it into a 401k. Converting the money into a Roth IRA would result in a tax bill. I think you're confusing this with a nondeductible tIRA, which is the first step of the IRA. The OP isn't there yet.
Last edited by 02nz on Wed Jul 28, 2021 5:07 pm, edited 1 time in total.
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David Jay
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Re: Rollover from traditional to rollover IRA

Post by David Jay »

I believe that you can declare that all the funds came from a tax-deferred rollover of an employer-sponsored plan and that will suffice.

There is no difference between a “rollover IRA” and a traditional IRA, the only difference is the source of the funds (contributions versus rollover).
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tomsense76
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Re: Rollover from traditional to rollover IRA

Post by tomsense76 »

*sigh* What a hassle. Sorry OP
David Jay wrote: Wed Jul 28, 2021 5:03 pm I believe that you can declare that all the funds came from a tax-deferred rollover of an employer-sponsored plan and that will suffice.

There is no difference between a “rollover IRA” and a traditional IRA, the only difference is the source of the funds (contributions versus rollover).
Yeah would try this. Should keep the maintenance burden to a minimum.

Good luck! Let us know how it goes :happy
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Topic Author
Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

02nz wrote: Wed Jul 28, 2021 4:56 pm Strange, my understanding has always been that a rollover IRA and traditional IRA are really the same thing. Regardless, if you open a new rollover IRA and deposit the funds there for transfer into the 401k, there should not be any tax consequences.
Right. Vanguard was surprised that my employer’s 401K will accept from a traditional but not from a rollover.
Topic Author
Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

David Jay wrote: Wed Jul 28, 2021 5:03 pm I believe that you can declare that all the funds came from a tax-deferred rollover of an employer-sponsored plan and that will suffice.

There is no difference between a “rollover IRA” and a traditional IRA, the only difference is the source of the funds (contributions versus rollover).
OK. Thanks! That is what I thought too. I still have the original paperwork from old employer who was sold several years ago.
tibbitts
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Re: Rollover from traditional to rollover IRA

Post by tibbitts »

So to clarify you didn't roll over directly from the employer plan to this IRA? Is Vanguard saying you made a mistake with the rollover, or that there was nothing you could have done to have the rollover recorded correctly?
diy60
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Re: Rollover from traditional to rollover IRA

Post by diy60 »

My MegaCorp employer still used the archaic term "conduit" IRA. There is no IRS distinction between this and any other traditional IRA. However, they would not accept any funds from a IRA that had other contributions co-mingled. This was a few years ago so I don't know if it has changed and if they accept self-declarations (they did not at the time).
Topic Author
Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

tibbitts wrote: Wed Jul 28, 2021 5:53 pm So to clarify you didn't roll over directly from the employer plan to this IRA? Is Vanguard saying you made a mistake with the rollover, or that there was nothing you could have done to have the rollover recorded correctly?
Vanguard is indifferent. Vanguard is saying it doesn’t make a difference to them so if I want they will convert it to a rollover IRA for me. They are actually surprised that my employer’s 401K is being that picky. However, Vanguard is saying, they will not be able to just change the type of account. I will have to create a new rollover account instead of changing the type of the current traditional IRA to a rollover IRA.
Topic Author
Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

diy60 wrote: Wed Jul 28, 2021 6:03 pm My MegaCorp employer still used the archaic term "conduit" IRA. There is no IRS distinction between this and any other traditional IRA. However, they would not accept any funds from a IRA that had other contributions co-mingled. This was a few years ago so I don't know if it has changed and if they accept self-declarations (they did not at the time).
Yeah and that is what I am learning that it really shouldn’t make any difference.
RetiredAL
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Re: Rollover from traditional to rollover IRA

Post by RetiredAL »

Ostentatious wrote: Wed Jul 28, 2021 6:25 pm
If they truly won't accept the funds without "rollover" being in the title, there is another option.

Consider just converting that IRA to a Roth, either as a lump or across a few years to spread the tax bite? If you do the conversion across a few years You could contribute non-deducible $ each year so as to not miss out on the opportunity and at the end convert that too. Or use those $ to further fund your 401K, as a trade between tax-deferred and not-taxed pots.
Statistical
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Re: Rollover from traditional to rollover IRA

Post by Statistical »

ResearchMed wrote: Wed Jul 28, 2021 4:01 pm
Ostentatious wrote: Wed Jul 28, 2021 3:06 pm I am facing a unique problem and don’t seem to get any answers. Because I no longer qualify fort Roth IRA contributions directly, I wanted to do a back door Roth. But because I have one IRA open with about 5% of my assets in it, I wanted to rollover that amount into my current employers 401K before doing the back door. I liquidated the IRA from Vanguard and was ready to send to my current employer’s 401K but just as I was going through the questionnaire, I noticed that my current employer’s 401K will not accept rollovers from a Traditional IRA (even though they told me otherwise when I initially inquired). They will only accept from a Rollover IRA. Anyway, I contacted Vanguard about it because my IRA with vanguard should actually have been a rollover IRA since the money was from a previous employer profit sharing plan after the business was sold. Vanguard will not change the type of account from Traditional to Rollover IRA. They have suggested opening a new rollover IRA and depositing the check from the Traditional IRA into the new rollover IRA account but I should research any tax implications myself. I have never heard about a rollover from Traditional to Rollover. Is there anything like that or would I create a taxable event if I did that?
Are you trying to get the money into that 401k so that you can do a back door into a Roth?
If so, why not just convert money from the non-Roth IRA into the Roth IRA?

RM
Taxes potentially a lot of taxes at very unfavorable rates.
Statistical
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Re: Rollover from traditional to rollover IRA

Post by Statistical »

If Vanguard will let you open a rollover and transfer into it that would seem to solve the problem. Understand from a tax point of view a traditional IRA and a rollover IRA are identical. Rollover IRA is really a legacy thing where at one time it made sense to segregate funds rolled form a 401k. These days it really doesn't but they still exist. It is dumb your employer will accept funds from a rollover IRA but not a traditional IRA but honestly it doesn't surprise me.
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Duckie
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Re: Rollover from traditional to rollover IRA

Post by Duckie »

Ostentatious wrote: Wed Jul 28, 2021 3:06 pm They have suggested opening a new rollover IRA and depositing the check from the Traditional IRA into the new rollover IRA account but I should research any tax implications myself. I have never heard about a rollover from Traditional to Rollover. Is there anything like that or would I create a taxable event if I did that?
If your current 401k requires the word "rollover" in the title before accepting the transfer then do as Vanguard suggests. Rolling from a TIRA to a Rollover IRA is not a taxable event if done correctly. Why is Vanguard talking about a check? Can't they just do a trustee-to-trustee transfer from the old TIRA to the new Rollover IRA?
an_asker
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Re: Rollover from traditional to rollover IRA

Post by an_asker »

Ostentatious wrote: Wed Jul 28, 2021 6:24 pm
tibbitts wrote: Wed Jul 28, 2021 5:53 pm So to clarify you didn't roll over directly from the employer plan to this IRA? Is Vanguard saying you made a mistake with the rollover, or that there was nothing you could have done to have the rollover recorded correctly?
Vanguard is indifferent. Vanguard is saying it doesn’t make a difference to them so if I want they will convert it to a rollover IRA for me. They are actually surprised that my employer’s 401K is being that picky. However, Vanguard is saying, they will not be able to just change the type of account. I will have to create a new rollover account instead of changing the type of the current traditional IRA to a rollover IRA.
Why was the account termed a traditional IRA in the first place when it should have been termed a Rollover IRA?
an_asker
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Re: Rollover from traditional to rollover IRA

Post by an_asker »

Duckie wrote: Wed Jul 28, 2021 8:31 pm [...]Why is Vanguard talking about a check?[...]
My understanding is that OP already has a check in his/her possession from Vanguard.
Lionel Hutz
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Re: Rollover from traditional to rollover IRA

Post by Lionel Hutz »

It’s all about what this employer plan’s rules are. While the IRS now allows rollovers into 401ks from Traditional IRA, the plan is not required to adopt the allowance of Traditional IRA. If their rules state Rollover IRAs only, that’s that.

The point and distinction is not the name, but rather the original source of the monies: can all the money be traced back to a rollover from a 401k (Rollover IRA) or was any of the money an IRA contribution (Traditional IRA)? If the latter, it violates the plan document to allow traditional IRA money to go into the 401k.
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celia
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Re: Rollover from traditional to rollover IRA

Post by celia »

A “Rollover IRA” is just a “traditional IRA” that is meant to temporarily hold tax-deferred assets from a former employer plan until (hopefully)
the employee gets another job where they can roll the assets into a new employer plan. Originally the IRS and custodians were strict on what could go into the account, but after a while the IRS allowed the employee to make direct contributions into the Rollover IRA. This loosening of rules was a mistake, in my opinion, since there are still employer plans that will only accept Rollover IRAs that only contain employer rollovers (and not employee contributions, which should have gone to the Traditional IRA instead). OP appears to have this stricter rule on his/her employer plan.
Ostentatious wrote: Wed Jul 28, 2021 6:24 pm Vanguard is saying it doesn’t make a difference to them so if I want they will convert it to a rollover IRA for me. They are actually surprised that my employer’s 401K is being that picky. However, Vanguard is saying, they will not be able to just change the type of account. I will have to create a new rollover account instead of changing the type of the current traditional IRA to a rollover IRA.
You were not talking to “Vanguard”, but to one of their less-experienced reps. Vanguard does want to follow the IRS rules even though some reps may not be relating them precisely. No custodian should just be changing the account type (unless they erred in creating the account recently). They NEED TO maintain the history of the account and who initiated transactions and when. (Don’t you want them to do this too?). So you can’t change a Tradditional IRA to a Rollover IRA or a Roth IRA. You can’t just change a personal joint account to a joint trust account. And you can’t change an IRA for a deceased person to belong to another person. In all these cases, you have to create a new account and have the assets moved from one account to another. If that doesn’t happen, how can someone research the history of the account(s) and understand what happened at any point in time?
RetiredAL wrote: Wed Jul 28, 2021 7:43 pm If they truly won't accept the funds without "rollover" being in the title, there is another option.

Consider just converting that IRA to a Roth, either as a lump or across a few years to spread the tax bite? If you do the conversion across a few years You could contribute non-deducible $ each year so as to not miss out on the opportunity and at the end convert that too.
I like this option since you can control how much is being converted each year. You can also do Backdoor Roths at the same time (converting each year to get more tax-free growth started). But I would only do it if the entire amount was converted in 5 years or less. You don’t want to hang onto the pro rata rule forever. Just get it done and move on.

By chance, if the current “Traditional IRA” can’t be converted that fast AND you can prove that you never made direct contributions to the account (thus co-mingling employer plan assets with non-employer assets), then go ahead and roll it into a new Rollover IRA. But when you roll both Rollover IRAs to a current employer plan, you need to be sure they are Direct Rollovers (without any check being made out to you), since there are severe penalties if you do more than one indirect rollover within 365 days of another. So after you have 2 Rollover IRAs (and an empty Traditional IRA), roll over the larger Rollover IRA first. If it goes smoothly, then you can do the other.

OP, Somewhere along the line, someone said or you misunderstood that Rollover IRAs can’t be rolled over to your employer plan, but Traditional IRAs can. This is backwards on what employer plans can accept. As far as employer plans go, rollovers from other employer plans are almost universally accepted. (I’ve seen only one case here where they weren’t.) The next most common option is to accept Rollover IRAs, although the employee may need to prove or certify no contributions were added. Next popular is accepting Traditional IRAs. An employer plan is NEVER permitted to accept rollovers of Roth IRAs or “basis” from a Traditional IRA (ie, non-deductible contributions).

Here is the official IRS chart showing what can be rolled over to what:
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

If you already have a check in hand from the Traditional IRA, this chart shows you will have to wait a year to do another Rollover if you roll it into another Traditional (Rollover) IRA.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

RetiredAL wrote: Wed Jul 28, 2021 7:43 pm
Ostentatious wrote: Wed Jul 28, 2021 6:25 pm
If they truly won't accept the funds without "rollover" being in the title, there is another option.

Consider just converting that IRA to a Roth, either as a lump or across a few years to spread the tax bite? If you do the conversion across a few years You could contribute non-deducible $ each year so as to not miss out on the opportunity and at the end convert that too. Or use those $ to further fund your 401K, as a trade between tax-deferred and not-taxed pots.
Thanks for bringing this up as I probably should have clarified that my employer’s 401K is not saying I should show any paperwork to confirm that it is coming from a rollover IRA. I just have to answer a questionnaire that it is coming from a rollover IRA. In a way, I can easily get away with it.
Topic Author
Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

an_asker wrote: Wed Jul 28, 2021 8:43 pm
Ostentatious wrote: Wed Jul 28, 2021 6:24 pm
tibbitts wrote: Wed Jul 28, 2021 5:53 pm So to clarify you didn't roll over directly from the employer plan to this IRA? Is Vanguard saying you made a mistake with the rollover, or that there was nothing you could have done to have the rollover recorded correctly?
Vanguard is indifferent. Vanguard is saying it doesn’t make a difference to them so if I want they will convert it to a rollover IRA for me. They are actually surprised that my employer’s 401K is being that picky. However, Vanguard is saying, they will not be able to just change the type of account. I will have to create a new rollover account instead of changing the type of the current traditional IRA to a rollover IRA.
Why was the account termed a traditional IRA in the first place when it should have been termed a Rollover IRA?
I’m not sure what happened but I didn’t know enough then to question this from VG.
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Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

celia wrote: Wed Jul 28, 2021 10:13 pm A “Rollover IRA” is just a “traditional IRA” that is meant to temporarily hold tax-deferred assets from a former employer plan until (hopefully)
the employee gets another job where they can roll the assets into a new employer plan. Originally the IRS and custodians were strict on what could go into the account, but after a while the IRS allowed the employee to make direct contributions into the Rollover IRA. This loosening of rules was a mistake, in my opinion, since there are still employer plans that will only accept Rollover IRAs that only contain employer rollovers (and not employee contributions, which should have gone to the Traditional IRA instead). OP appears to have this stricter rule on his/her employer plan.
Ostentatious wrote: Wed Jul 28, 2021 6:24 pm Vanguard is saying it doesn’t make a difference to them so if I want they will convert it to a rollover IRA for me. They are actually surprised that my employer’s 401K is being that picky. However, Vanguard is saying, they will not be able to just change the type of account. I will have to create a new rollover account instead of changing the type of the current traditional IRA to a rollover IRA.
You were not talking to “Vanguard”, but to one of their less-experienced reps. Vanguard does want to follow the IRS rules even though some reps may not be relating them precisely. No custodian should just be changing the account type (unless they erred in creating the account recently). They NEED TO maintain the history of the account and who initiated transactions and when. (Don’t you want them to do this too?). So you can’t change a Tradditional IRA to a Rollover IRA or a Roth IRA. You can’t just change a personal joint account to a joint trust account. And you can’t change an IRA for a deceased person to belong to another person. In all these cases, you have to create a new account and have the assets moved from one account to another. If that doesn’t happen, how can someone research the history of the account(s) and understand what happened at any point in time?
RetiredAL wrote: Wed Jul 28, 2021 7:43 pm If they truly won't accept the funds without "rollover" being in the title, there is another option.

Consider just converting that IRA to a Roth, either as a lump or across a few years to spread the tax bite? If you do the conversion across a few years You could contribute non-deducible $ each year so as to not miss out on the opportunity and at the end convert that too.
I like this option since you can control how much is being converted each year. You can also do Backdoor Roths at the same time (converting each year to get more tax-free growth started). But I would only do it if the entire amount was converted in 5 years or less. You don’t want to hang onto the pro rata rule forever. Just get it done and move on.

By chance, if the current “Traditional IRA” can’t be converted that fast AND you can prove that you never made direct contributions to the account (thus co-mingling employer plan assets with non-employer assets), then go ahead and roll it into a new Rollover IRA. But when you roll both Rollover IRAs to a current employer plan, you need to be sure they are Direct Rollovers (without any check being made out to you), since there are severe penalties if you do more than one indirect rollover within 365 days of another. So after you have 2 Rollover IRAs (and an empty Traditional IRA), roll over the larger Rollover IRA first. If it goes smoothly, then you can do the other.

OP, Somewhere along the line, someone said or you misunderstood that Rollover IRAs can’t be rolled over to your employer plan, but Traditional IRAs can. This is backwards on what employer plans can accept. As far as employer plans go, rollovers from other employer plans are almost universally accepted. (I’ve seen only one case here where they weren’t.) The next most common option is to accept Rollover IRAs, although the employee may need to prove or certify no contributions were added. Next popular is accepting Traditional IRAs. An employer plan is NEVER permitted to accept rollovers of Roth IRAs or “basis” from a Traditional IRA (ie, non-deductible contributions).

Here is the official IRS chart showing what can be rolled over to what:
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

If you already have a check in hand from the Traditional IRA, this chart shows you will have to wait a year to do another Rollover if you roll it into another Traditional (Rollover) IRA.
I have been converting for a while now but the last time (2020), that increased my income to the point that I’m afraid it will put me in a different tax bracket and I owed IRS a lot of money. With significant increase in household income this year, it is not prudent for me to convert anymore.
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Re: Rollover from traditional to rollover IRA

Post by placeholder »

When you say check what do you mean is it one made out to you or to the 401k?
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Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

placeholder wrote: Wed Jul 28, 2021 11:58 pm When you say check what do you mean is it one made out to you or to the 401k?
Made for the benefit of me (FBO).
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retiredjg
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Re: Rollover from traditional to rollover IRA

Post by retiredjg »

Ostentatious wrote: Thu Jul 29, 2021 5:49 am
placeholder wrote: Wed Jul 28, 2021 11:58 pm When you say check what do you mean is it one made out to you or to the 401k?
Made for the benefit of me (FBO).
You have a check representing pre-tax dollars from an IRA that was created by a rollover of a work plan of some kind. I suggest you forward this check to the 401k and certify that the money was from an IRA created by a rollover of a work plan.

What they are trying to do is avoid accidentally accepting after-tax money such as a non-deductible contribution to tIRA. If you have never made non-deductible contributions that is not an issue.

I would not consider this "getting away" with anything if you are sure about the IRA being composed of rollover funds.
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Re: Rollover from traditional to rollover IRA

Post by placeholder »

Yeah I'm not sure you even could deposit in an ira if it's made out to the 401k with FBO so I would just send it in with the paperwork and see how it goes.
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Ostentatious
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Re: Rollover from traditional to rollover IRA

Post by Ostentatious »

retiredjg wrote: Thu Jul 29, 2021 9:02 am
Ostentatious wrote: Thu Jul 29, 2021 5:49 am
placeholder wrote: Wed Jul 28, 2021 11:58 pm When you say check what do you mean is it one made out to you or to the 401k?
Made for the benefit of me (FBO).
You have a check representing pre-tax dollars from an IRA that was created by a rollover of a work plan of some kind. I suggest you forward this check to the 401k and certify that the money was from an IRA created by a rollover of a work plan.

What they are trying to do is avoid accidentally accepting after-tax money such as a non-deductible contribution to tIRA. If you have never made non-deductible contributions that is not an issue.

I would not consider this "getting away" with anything if you are sure about the IRA being composed of rollover funds.
Well, the rollover part is where the confusion is. When, I set the account up, I had pretax checks from an employer profit sharing plan. I opened the account at vanguard without knowing the difference between a rollover and a traditional IRA. Somehow, Vanguard had been treating it as a tradition IRA for more than 2 decades and I didn’t realize it until now. I will still proceed to depoot it into my 401K because I can prove that it was from a precious employer.
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Re: Rollover from traditional to rollover IRA

Post by placeholder »

There isn't really a difference between the two unless you're born in the 1930s so vanguard hasn't done anything wrong but with the check as it is I doubt it could go into an ira so I'd just send it to your 401k with the form and see what happens.
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