Rolling 401(k) before check received

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FlyingMoose
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Rolling 401(k) before check received

Post by FlyingMoose »

I'm helping my cousin roll over his 401(k) and convert it to a Roth.

Time is short since he wants to get it done by the end of the year.

I know there is a 60-day limit on sending money to the new custodian after receiving the check. I just wonder if it is allowed to send the money to the new custodian before receiving the check (presuming one has enough money to do so). Does the same 60-day rule apply (that is, can he send the money 60 days before receiving the check from the old custodian)?
JBTX
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Re: Rolling 401(k) before check received

Post by JBTX »

Best way to do it is to have it either sent directly to new investment company or at least have the check directed to the new company. I've never hear of a scenario where people fund it with personal funds but I don't know for sure. However it is cleaner with less hurdles if it goes directly to the new company vs paid to you and then you fund.

https://www.irs.gov/retirement-plans/pl ... tributions
Topic Author
FlyingMoose
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Re: Rolling 401(k) before check received

Post by FlyingMoose »

JBTX wrote: Mon Nov 29, 2021 5:29 pm Best way to do it is to have it either sent directly to new investment company or at least have the check directed to the new company. I've never hear of a scenario where people fund it with personal funds but I don't know for sure. However it is cleaner with less hurdles if it goes directly to the new company vs paid to you and then you fund.

https://www.irs.gov/retirement-plans/pl ... tributions
I understand that would be ideal but the current custodian doesn't seem to be able to do it.
runninginvestor
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Re: Rolling 401(k) before check received

Post by runninginvestor »

Will the check be made out to the individual or receiving institution? They may receive an FBO check where it's made out to the new custodian FBO [individual's name] in which case the individual wouldn't be able to cash the check and they just forward to the custodian.

If the check was solely made out to the individual, then what you are proposing you work I suppose. But if you received the FBO check, it'd be a quandary.
retire2022
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Re: Rolling 401(k) before check received

Post by retire2022 »

FlyingMoose wrote: Mon Nov 29, 2021 5:24 pm I'm helping my cousin roll over his 401(k) and convert it to a Roth.

Time is short since he wants to get it done by the end of the year.

I know there is a 60-day limit on sending money to the new custodian after receiving the check. I just wonder if it is allowed to send the money to the new custodian before receiving the check (presuming one has enough money to do so). Does the same 60-day rule apply (that is, can he send the money 60 days before receiving the check from the old custodian)?
Op

I got my former's employer 457 program to send a check to Vanguard it took less than four days should you like to read, this is what transpired: viewtopic.php?f=1&t=324944
Topic Author
FlyingMoose
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Re: Rolling 401(k) before check received

Post by FlyingMoose »

Is it possible to do the Roth conversion at the same time as the rollover? That is, deposit the check from a 401(k) into a Roth as a simultaneous conversion and rollover?

The new custodian is Fidelity, if anyone knows anything more specific about them.
retire2022
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Re: Rolling 401(k) before check received

Post by retire2022 »

FlyingMoose wrote: Mon Nov 29, 2021 5:34 pm Is it possible to do the Roth conversion at the same time as the rollover? That is, deposit the check from a 401(k) into a Roth as a simultaneous conversion and rollover?

The new custodian is Fidelity, if anyone knows anything more specific about them.
As long as the funds land at Fidelity it is possible.
Alan S.
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Re: Rolling 401(k) before check received

Post by Alan S. »

FlyingMoose wrote: Mon Nov 29, 2021 5:24 pm I'm helping my cousin roll over his 401(k) and convert it to a Roth.

Time is short since he wants to get it done by the end of the year.

I know there is a 60-day limit on sending money to the new custodian after receiving the check. I just wonder if it is allowed to send the money to the new custodian before receiving the check (presuming one has enough money to do so). Does the same 60-day rule apply (that is, can he send the money 60 days before receiving the check from the old custodian)?
This should be done as a direct rollover which avoids mandatory 20% withholding even though a direct Roth rollover will be taxable. The taxable income will be realized this year as long as the 401k transfer leaves the 401k by year end. But the 5 year conversion holding period will start in the year in which the Roth IRA actually receives the rollover contribution.

As another has observed, if a direct rollover check is requested, but a rollover contribution is made before the direct rollover check is received, he will end up holding a direct rollover check which should not be honored without the Roth IRA payee endorsing the check. A bank should not let him cash the check alone to reimburse himself. Further, if a rollover contribution is made before the plan actually issues a check, there will be a double balance which is an excess contribution if the IRS ever discovers the timing infraction.

Now for the distribution only scenario where a direct rollover is not requested. Such a distribution will trigger mandatory 20% withholding which will have to be replaced with other funds to have a complete rollover. He will be able to cash the check since it will be made payable to only him. If he replaced the withholding and provided his own check for the rollover contribution it would be OK as long as this was not done before the plan distribution was even made. If that happened there would be the same excess contribution situation as above.

Finally, if he wants to convert the entire distribution to a Roth IRA, he should request a direct rollover to his Roth IRA. There is no need to roll the distribution to a TIRA first. If he only wants to convert a portion of the plan balance to Roth, there are two options:
1) Request a split rollover, part to TIRA and part to Roth IRA.
2) Roll all to TIRA, then convert the desired amount from TIRA to Roth IRA.

And in addition to the problems outlined above, there may also be other unintended consequences to front running the rollover contribution.
Lionel Hutz
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Re: Rolling 401(k) before check received

Post by Lionel Hutz »

FlyingMoose wrote: Mon Nov 29, 2021 5:34 pm Is it possible to do the Roth conversion at the same time as the rollover? That is, deposit the check from a 401(k) into a Roth as a simultaneous conversion and rollover?
Yes it’s 100% possible under current rules. The problem appears to be more with the 401k custodian and less with Fidelity as the receiving institution for the Roth IRA.

While a conversion from a traditional 401k straight to Roth IRA is allowed, it is not that common. As such, you may be experiencing reps at the 401k institution who are unfamiliar with the maneuver. But rest assured it can be done, so you may need to navigate the call center to get a more senior rep. Anyone who says it’s not possible is mistaken.

Follow Alan S’s instructions and you’ll be fine. You do not want to do a distribution, but a direct rollover.
Topic Author
FlyingMoose
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Re: Rolling 401(k) before check received

Post by FlyingMoose »

From the point of view of the current 401(k) custodian, is there a difference in a check they will write for a rollover vs a conversion? Or is that handled by the receiving custodian (Fidelity)?
retire2022
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Re: Rolling 401(k) before check received

Post by retire2022 »

FlyingMoose wrote: Wed Dec 01, 2021 9:47 pm From the point of view of the current 401(k) custodian, is there a difference in a check they will write for a rollover vs a conversion? Or is that handled by the receiving custodian (Fidelity)?
I can’t speak for Fidelity, but my pretax 457 funds at Vanguard, as a traditional IRA there is a convert to Roth button.

I am sure there is that capability in a traditional pretax IRA account at Fidelity.
123
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Re: Rolling 401(k) before check received

Post by 123 »

Rolling 401(k) proceeds into a new account before receiving the check is begging for something to go wrong. Granted there could be many situations where the amount of the rollover is not consequential and many people would have the other funds readily available to fund the receiving account. I can foresee a number of possible check problems that could occur. Maybe it will all work out smoothly, but there's always a chance it won't.
The closest helping hand is at the end of your own arm.
Topic Author
FlyingMoose
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Re: Rolling 401(k) before check received

Post by FlyingMoose »

retire2022 wrote: Wed Dec 01, 2021 10:07 pm
FlyingMoose wrote: Wed Dec 01, 2021 9:47 pm From the point of view of the current 401(k) custodian, is there a difference in a check they will write for a rollover vs a conversion? Or is that handled by the receiving custodian (Fidelity)?
I can’t speak for Fidelity, but my pretax 457 funds at Vanguard, as a traditional IRA there is a convert to Roth button.

I am sure there is that capability in a traditional pretax IRA account at Fidelity.

The current 401(k) custodian (not Fidelity) definitely can’t convert it to a Roth. When they send the direct rollover check, is there something different they need to do if it will be deposited directly into a Roth IRA at Fidelity?
retire2022
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Re: Rolling 401(k) before check received

Post by retire2022 »

FlyingMoose wrote: Wed Dec 01, 2021 10:50 pm
retire2022 wrote: Wed Dec 01, 2021 10:07 pm
FlyingMoose wrote: Wed Dec 01, 2021 9:47 pm From the point of view of the current 401(k) custodian, is there a difference in a check they will write for a rollover vs a conversion? Or is that handled by the receiving custodian (Fidelity)?
I can’t speak for Fidelity, but my pretax 457 funds at Vanguard, as a traditional IRA there is a convert to Roth button.

I am sure there is that capability in a traditional pretax IRA account at Fidelity.

The current custodian definitely can’t convert it to a Roth. When they send the direct rollover check, is there something different they need to do if it will be deposited directly into a Roth IRA?
Just to be clear

The pretax funds will go in Fidelity pretax Traditional IRA account.

Then there should be a button to press and amount to convert at Fidelity to a Roth IRA.

That is how my pretax 457 was deposited into pretax traditional IRA at Vanguard and the button capability to convert is there.

I don’t have a Fidelity account so I cannot speak to that, perhaps someone who has can chime in.

Ive googled this https://www.fidelity.com/retirement-ira ... checklists and it confirms my understanding, I suggest you contact Fidelity directly to see if this is the case.

best
Topic Author
FlyingMoose
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Re: Rolling 401(k) before check received

Post by FlyingMoose »

retire2022 wrote: Wed Dec 01, 2021 10:55 pm
FlyingMoose wrote: Wed Dec 01, 2021 10:50 pm
retire2022 wrote: Wed Dec 01, 2021 10:07 pm
FlyingMoose wrote: Wed Dec 01, 2021 9:47 pm From the point of view of the current 401(k) custodian, is there a difference in a check they will write for a rollover vs a conversion? Or is that handled by the receiving custodian (Fidelity)?
I can’t speak for Fidelity, but my pretax 457 funds at Vanguard, as a traditional IRA there is a convert to Roth button.

I am sure there is that capability in a traditional pretax IRA account at Fidelity.

The current custodian definitely can’t convert it to a Roth. When they send the direct rollover check, is there something different they need to do if it will be deposited directly into a Roth IRA?
Just to be clear

The pretax funds will go in Fidelity pretax Traditional IRA account.

Then there should be a button to press and amount to convert at Fidelity to a Roth IRA.

That is how my pretax 457 was deposited into pretax traditional IRA at Vanguard and the button capability to convert is there.

I don’t have a Fidelity account so I cannot speak to that, perhaps someone who has can chime in.

Ive googled this https://www.fidelity.com/retirement-ira ... checklists and it confirms my understanding, I suggest you contact Fidelity directly to see if this is the case.

best
Two posters above indicated that a Roth conversion can be done by requesting a rollover of a pre-tax account and depositing the rollover check directly into a Roth account. That’s what I’m asking about.
retire2022
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Re: Rolling 401(k) before check received

Post by retire2022 »

FlyingMoose wrote: Wed Dec 01, 2021 11:35 pm
Two posters above indicated that a Roth conversion can be done by requesting a rollover of a pre-tax account and depositing the rollover check directly into a Roth account. That’s what I’m asking about.
Well they are probably right as I do not have a Fidelity account as I know if can be done in Vanguard which is my point to you.
Lionel Hutz
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Re: Rolling 401(k) before check received

Post by Lionel Hutz »

FlyingMoose wrote: Wed Dec 01, 2021 9:47 pm From the point of view of the current 401(k) custodian, is there a difference in a check they will write for a rollover vs a conversion? Or is that handled by the receiving custodian (Fidelity)?
It is 100% on the sending institution (current 401k custodian). It’s 100% possible and legal as of 2021.
Lionel Hutz
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Re: Rolling 401(k) before check received

Post by Lionel Hutz »

duplicate - deleted
Last edited by Lionel Hutz on Thu Dec 02, 2021 10:27 pm, edited 1 time in total.
Lionel Hutz
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Re: Rolling 401(k) before check received

Post by Lionel Hutz »

FlyingMoose wrote: Wed Dec 01, 2021 10:50 pm
The current 401(k) custodian (not Fidelity) definitely can’t convert it to a Roth. When they send the direct rollover check, is there something different they need to do if it will be deposited directly into a Roth IRA at Fidelity?
The 401k custodian definitely *can and must convert it to a Roth IRA directly (if what you desire is a conversion of pretax 401k to Roth IRA)

What I suspect is happening, is that since this is a generally uncommon request, the 401k custodian’s procedures may differ than the much more standard rollover method, and therefore the reps you’re speaking to are unsure of how to complete it.

But again as of 2021 it is absolutely possible and legal. Your 401k custodian must figure it out, they can’t tell you it’s not possible because that’s incorrect. You may need to elevate to a supervisor or request you be sent to their senior phone reps (a newer or junior phone rep is likely untrained in, and/or not knowledge of, this procedure).

As a complete aside, if your cousin has no other Traditional IRAs or Rollover IRAs, another option is to rollover to a traditional IRA, then convert to Roth IRA.
twh
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Re: Rolling 401(k) before check received

Post by twh »

FlyingMoose wrote: Wed Dec 01, 2021 10:50 pm
retire2022 wrote: Wed Dec 01, 2021 10:07 pm
FlyingMoose wrote: Wed Dec 01, 2021 9:47 pm From the point of view of the current 401(k) custodian, is there a difference in a check they will write for a rollover vs a conversion? Or is that handled by the receiving custodian (Fidelity)?
I can’t speak for Fidelity, but my pretax 457 funds at Vanguard, as a traditional IRA there is a convert to Roth button.

I am sure there is that capability in a traditional pretax IRA account at Fidelity.
The current 401(k) custodian (not Fidelity) definitely can’t convert it to a Roth. When they send the direct rollover check, is there something different they need to do if it will be deposited directly into a Roth IRA at Fidelity?
The problem with advancing a check in anticipation of a payout is what happens if the custodian doesn't do it until 2022? And if you advanced the funds in 2021? The 401k custodian will issue a 1099-R and it will mess you up.

Yes, the check must be made out differently if the 401k is not a direct rollover and you actually take possession of the money. That is, the check is made out to you personally, as in, "John Doe". You then have 60 days to do an indirect rollover. But, I do think the custodian is obligated to withhold 20% if the check is made out to you and you will have to come up with that extra 20% with other funds, which it seems you have. You'll then get that 20% back at tax time.

If you choose the direct rollover, the last one I moved a few years ago to Fidelity had the check made out like this: check payable to "FMTC, FBO John Doe". BTW, FMTC is Fidelity Management Trust Company. No 20% withholding.

I would not try and bundle the 401k rollover to Fidelity simultaneously with a Roth Conversion. I don't know if they can do it, but it isn't normal and it is just going to make it harder. The good news is that once the money is at Fidelity, you can convert to a Roth IRA online very easily the same day with just a few clicks.
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FlyingMoose
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Re: Rolling 401(k) before check received

Post by FlyingMoose »

Lionel Hutz wrote: Thu Dec 02, 2021 10:26 pm
FlyingMoose wrote: Wed Dec 01, 2021 10:50 pm
The current 401(k) custodian (not Fidelity) definitely can’t convert it to a Roth. When they send the direct rollover check, is there something different they need to do if it will be deposited directly into a Roth IRA at Fidelity?
The 401k custodian definitely *can and must convert it to a Roth IRA directly (if what you desire is a conversion of pretax 401k to Roth IRA)

What I suspect is happening, is that since this is a generally uncommon request, the 401k custodian’s procedures may differ than the much more standard rollover method, and therefore the reps you’re speaking to are unsure of how to complete it.

But again as of 2021 it is absolutely possible and legal. Your 401k custodian must figure it out, they can’t tell you it’s not possible because that’s incorrect. You may need to elevate to a supervisor or request you be sent to their senior phone reps (a newer or junior phone rep is likely untrained in, and/or not knowledge of, this procedure).

As a complete aside, if your cousin has no other Traditional IRAs or Rollover IRAs, another option is to rollover to a traditional IRA, then convert to Roth IRA.
So the check would be made out specifically for a Roth account? The current custodian doesn’t have Roth accounts. So they’d have to convert at the same time as making out the check.
retire2022
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Re: Rolling 401(k) before check received

Post by retire2022 »

FlyingMoose wrote: Fri Dec 03, 2021 1:11 am
So the check would be made out specifically for a Roth account? The current custodian doesn’t have Roth accounts. So they’d have to convert at the same time as making out the check.
The Roth 401(Designated Roth account) be made out specifically "For Benefit Of" (FBO) with the name of the Roth owner.

Does your Fidelity account have an existing Roth IRA more than five years old?

If yes the Roth 401k (Designated Roth account) fund could go into that receiving existing Roth IRA account, it will be considered qualified.

Otherwise, you need to create a Roth IRA account at Fidelity, and not withdrawn the funds until they become qualified (more than five years), otherwise it will be taxable at withdrawal.

This is language IRS uses:

"Separate for each Roth account and begins on January 1 of the year contributions made to that account. If one Roth account is rolled into another, the earlier start date applies."

see IRS link as reference illustrating the differences between Roth IRA and Designated Roth account (401k, 403 & 457): https://www.irs.gov/retirement-plans/te ... th-account

additional reference FAQ on Designated Roth account Rollovers

https://www.irs.gov/retirement-plans/re ... 1rollovers
retire2022
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Re: Rolling 401(k) before check received

Post by retire2022 »

Op

This thread discusses the Roth Conversion process at Fidelity in case you are interested:

viewtopic.php?f=1&t=364389
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