Rollover traditional IRA with basis to qualifying tax deferred work plan (401K). Traditional IRA has a small amount of basis. What do I do with the basis amount?

[magpie8888]

I want to rollover all my traditional IRA to my qualifying tax deferred work plan (401K).  Traditional IRA has a small amount of non-tax deferred basis.  When I do the rollover to the tax deferred 401K, what do I do with the non-tax deferred basis amount?

[dmertz · Accepted solution]

IRA basis is not permitted to be rolled over to a 401(k).  You must limit your rollover to the 401(k) so that the amount rolled over to the 401(k) is no more than would be taxable if you distributed (or Roth converted) all funds from your traditional IRAs and did not roll any over to the 401(k).  I would suggest converting the remainder (the basis in nondeductible traditional IRA contributions) to a Roth IRA rather than leave it in the traditional IRA.

[magpie8888]

I would have liked to convert the basis to roth ira a long time ago, but figured if I did it wrong, the irs would count the basis amount as part of the traditional amount and tax me on it as a traditional distribution.  So I have to figure out how to move and identify just the basis to roth.  I kept reading about percentages of traditional amount versus the roth amount.  My 401k has both traditional and roth.  From the answer, sound like I could rollover just the basis amount to a roth ira for starters?    

[dmertz]

Yes, you can ensure that no basis is rolled over to the 401(k) from the IRA by first rolling over to a Roth IRA in the same year an amount equal to your basis in nondeductible traditional IRA contributions.  Since the amount of basis is apparently small, if the 401(k) ultimately declines to accept the rollover for some reason, making most of your Roth conversion taxable, the tax consequences of the Roth conversion will be minor.  Just remember that all of your traditional IRAs are treated as a single account for the purpose of these calculations.

Your 401(k) plan will likely require you to provide them with a statement certifying that your rollover from the IRA contains no after-tax basis.

[magpie8888]

Thank you very much. Yes small amount, so will be a test for me.   Other complication for me is moving so much, IRAs are located all over.   Thanks so much for you help.  I will start small with the basis rollover to Roth IRA.