January 15, 2020 at 1:02 am #5115b1_leeParticipant
My son works for a company that does not offer Roth 401K. He is much younger than 59.5. Can he rollover T-401K to T-IRA, then convert to Roth IRA (pay ordinary income tax, but without incur 10% early penalty) while continues to employ by the company? Is there a $ limit on rollover/conversion each year? Can he convert T-401K directly to Roth IRA?
Let say he takes a new job and new company does not offer Roth 401K. Is there a time limit that he can rollover/convert old company T-401K to T-IRA, then convert to Roth IRA? Does he have to empty entire balance one time or he can do it over multiple non-continuous years?January 15, 2020 at 6:50 pm #5119Alan S.Participant
While a pre tax 401k balance can be rolled directly to a Roth IRA, it is unlikely that he can take a distribution while still employed and under 59.5. The exception would be if he was able to make after tax non Roth contributions to the plan (called employee contributions) he would normally be allowed to roll those contributions and their earnings out of the plan to a Roth IRA at any age.
If he left the current company, then a direct rollover can be done from the former plan anytime to a Roth IRA. The plan would determine if he could do partial rollovers or was required to take out the entire balance. If required to roll out the entire balance, he would probably roll it to a TIRA account from which he could convert in smaller amounts to control the taxes due on the conversion.January 16, 2020 at 3:13 pm #5127b1_leeParticipant
Your 1st paragraph answer of “employee contributions”.
-What is the max dollar amount or % of salary can he do each year?
-Let say he put in $1,000 and before he can take any action it earned $1, can he ask employer to roll $1,000 + $1 (tax free) to Roth IRA?
-How can he find out from employer that $1,000 earned $1?
-How many times can he repeat put in & take out each year without wearing out welcome mat?
-Are all employers required by law to accept “employee contribution” & roll out to Roth IRA?
-Why some companies do not offer Roth 401k?
-When file tax return, any reporting need by him and any supporting report/statements from employers?
Your 2nd paragraph answer
-Can he wait for 10 or more years after quitting and still under 59.5 to do?
-What if the company is out of business/bankrupt, etc before he take any action? Would he lose anything?
ThanksJanuary 17, 2020 at 2:07 am #5134Alan S.Participant
There is no separate category maximum for employee contributions, but they are part of the total annual additions limit of 57,000 that applies to all contributions to the plan including company match. Sometimes the plan will limit after tax contributions so that the employee does not come near to the max or to limit discrimination testing failures.
If an after tax contribution is rolled to a Roth IRA after earning $1, the taxable amount will be that one dollar. For the balance in the after tax sub account, if there is on line access for the account, it should show up there. Otherwise, a call would be necessary.
The plan provisions will state the frequency of rollovers allowed. There is no IRS limit. Many plans do NOT offer “employee contributions”, again this is a plan option that is typically only used by higher income staff. More plans offer a designated Roth account, but some of those do not offer in plan Roth rollovers. Some plans that do offer in plan Roth rollovers require that the after tax sub account be rolled there instead of to a Roth IRA.
For distributions from the after tax account, a 1099R will be issued showing the taxable amount, and that is reported on Form 1040.
401k balances are required to be kept in separate accounts for each employee and cannot be used for any company purposes. These accounts are safe even if the company goes under.January 31, 2020 at 1:47 am #5198The PA InvestorParticipant
I’m not sure how much your son makes but he can add to a Roth IRA directly. He will begin to get phased out of being able to directly add to a Roth IRA the more he makes. You can always bypass all of this by just doing a backdoor Roth IRA every year to the full amount.
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