non deductible ira moved to 401k??

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
noobtoinvesting
Posts: 24
Joined: Mon Oct 09, 2017 11:08 am

non deductible ira moved to 401k??

Post by noobtoinvesting »

hey guys

I was planning on doing backdoor roth ira this year and for that reason i moved all my trad IRA to my 401k recently but i did not realize that i moved my non deductible ira to 401k. I should have just moved those funds to roth ira.

What issues or problems am i looking ahead other than paying taxes again in future when withdraw it??
can I reverse it now or its too late?

any help is appreciated
thanks in advance
Spirit Rider
Posts: 13977
Joined: Fri Mar 02, 2007 2:39 pm

Re: non deductible ira moved to 401k??

Post by Spirit Rider »

IRS regulations do not allow the rollover of anything but pre-tax IRA assets. So this rollover was a 401k plan error

You need to contact your 401k plan administrator and inform them. They will gladly roll the non-deductible basis and any earnings back into the IRA it came from. Then you can roll that into a Roth IRA with any earnings being taxable.

You will have all the 1099 reporting of all this. I think you might want to include an explanation letter of all this to the IRS with your return.

Maybe Alan S. can reply.
User avatar
celia
Posts: 12539
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: non deductible ira moved to 401k??

Post by celia »

You will have to notify the 401K custodian of both the amount of the non-deductible contribution that they received and the growth on that contribution that they received, since they have no way of determining the growth that happened before they received the money. For example, the contribution could have been made the day before the rollover or 10 years ago. The growth calculation will have to take into account the total value of all your non-Roth IRAs, even if some were held at different custodians or the non-deductible contribution was put into a separate fund.
User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: non deductible ira moved to 401k??

Post by Earl Lemongrab »

Spirit Rider wrote: Thu Nov 16, 2017 12:37 am They will gladly roll the non-deductible basis and any earnings back into the IRA it came from.
I don't know about "gladly".
User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: non deductible ira moved to 401k??

Post by Earl Lemongrab »

celia wrote: Thu Nov 16, 2017 2:52 am You will have to notify the 401K custodian of both the amount of the non-deductible contribution that they received and the growth on that contribution that they received, since they have no way of determining the growth that happened before they received the money.
What do you mean? The growth prior to rollover is irrelevant, as that is pretax and eligible for rollover into the 401(k). The plan will calculate the growth due to the ineligible rollover.
User avatar
celia
Posts: 12539
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: non deductible ira moved to 401k??

Post by celia »

Earl Lemongrab wrote: Thu Nov 16, 2017 1:01 pm
Spirit Rider wrote: Thu Nov 16, 2017 12:37 am They will gladly roll the non-deductible basis and any earnings back into the IRA it came from.
I don't know about "gladly".
Yes, They will WANT to do this since I believe that holding onto it may put their plan in jeopardy if it remains in the plan. (I don't have time to look for an official reference for this right now.)

Earl Lemongrab wrote: Thu Nov 16, 2017 1:03 pm
celia wrote: Thu Nov 16, 2017 2:52 am You will have to notify the 401K custodian of both the amount of the non-deductible contribution that they received and the growth on that contribution that they received, since they have no way of determining the growth that happened before they received the money.
What do you mean? The growth prior to rollover is irrelevant, as that is pretax and eligible for rollover into the 401(k). The plan will calculate the growth due to the ineligible rollover.
No 401K is permitted to accept rollovers of non-deductible contributions. They may or may not allow the growth on the contributions to be rolled over. The OP will have to call them and find out. We have seen cases in this forum where some plans accept the growth and some plans don't.

Earl, your last two sentences also sound contradictory. You don't think the growth on the non-deductible contributions matters before the rollover. But after the rollover, it does matter and the custodian will determine it? Either all of the growth on the non-deductible contribution has to be removed or doesn't have to be removed.
User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: non deductible ira moved to 401k??

Post by Earl Lemongrab »

celia wrote: Thu Nov 16, 2017 8:29 pmWe have seen cases in this forum where some plans accept the growth and some plans don't.
We have? I've seen you claim it often. I don't recall many if any actual cases. Could you provide some thread links?
celia wrote: Thu Nov 16, 2017 8:29 pm Earl, your last two sentences also sound contradictory. You don't think the growth on the non-deductible contributions matters before the rollover. But after the rollover, it does matter and the custodian will determine it? Either all of the growth on the non-deductible contribution has to be removed or doesn't have to be removed.
Of course. The growth in the plan was due to an illegal rollover. The ones rolled in were not. You don't see the difference?
User avatar
celia
Posts: 12539
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: non deductible ira moved to 401k??

Post by celia »

Earl Lemongrab wrote: Fri Nov 17, 2017 12:36 am
celia wrote: Thu Nov 16, 2017 8:29 pmWe have seen cases in this forum where some plans accept the growth and some plans don't.
We have? I've seen you claim it often. I don't recall many if any actual cases. Could you provide some thread links?
OK. I would like to do this, but it is difficult to search my own posts since I have so many on this topic (and others) and my wording on this has shifted over the last year, causing searches to be difficult. (I will start bookmarking them in my browser for future reference. If anyone else knows where these posts are, please let us know.) I think 3 or 4 posters have reported back on what the 401K custodian has said. I can only find one response now saying the custodian would not take the growth on the non-deductible contribution:

viewtopic.php?f=1&t=222441&p=3437606&#p3437606
I am told that I can rollover all pre-tax money and its growth. The after-tax and its growth cannot be rolled over.
If you read more of that thread than this particular post, you can see the context of the discussion.
User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: non deductible ira moved to 401k??

Post by Earl Lemongrab »

Yeah, and I see a lot of doubt that the person understood the instructions. Also, customer service reps frequently say things that are incorrect.

Unless the receiver requires account statements, how could they possibly tell the difference between growth from pretax contributions and after-tax? In the case in this thread, the OP has already rolled over not only the growth but the after-tax. The custodian is pretty obviously not requiring any proof of origin. There are some plans that stick to the old rules of requiring that the rollover come from a "pure" conduit IRA from another qualified plan, but not this odd thing about growth from after-tax.

I think this is something you got in your head that doesn't really exist.
Post Reply