Level 20
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Retirement tax questions

It's a mistake in the sense that it delays the ability for the individual to access (distribute) the basis in the individual's traditional IRAs.  In the case where the entirety of the individual's IRA balance is basis, the situation described in the original question, had the individual not rolled over money from the 401(k) the individual could have performed a conversion to a Roth IRA (or a regular distribution) of the entire balance of the IRA that would have been entirely nontaxable.  Rolling over the 401(k) in the same year defeats that strategy since the Roth conversion becomes largely taxable with a large portion of the basis remaining in the individual's traditional IRAs.  The individual's traditional IRAs will always contain some basis until there is a zero year-end balance in the individual's traditional IRAs.  The result of the rollover from the 401(k) is that taxable income is pulled forward (assuming the same distributions from the IRAs).