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mfrank
Level 2

Traditional IRA Basis if rolled over 401K and employer pension benefit?

Hello,

 

I did my first Roth conversion this year and while reviewing my most recent traditional IRA basis on form 8606, I realized I never factored in two types of rollovers I have done in the past from employers: a 401K including both employee and employer contributions, and an employer pension plan vested benefit which was from employer only contributions.

 

Do either of these two types of rollovers into a traditional IRA affect the basis of the IRA? I know the basis affects the taxable portion of the Roth rollover I did.

 

Thank you for your help.

 

(I reviewed previous questions but none seemed to be just like my situation.)

1 Best answer

Accepted Solutions
dmertz
Level 15

Traditional IRA Basis if rolled over 401K and employer pension benefit?

These rollovers do not change your basis in traditional IRA contributions if you had no after-tax money in your 401(k) or pension plan.  After-tax money in the 401(k) could have resulted from continuing to pay off a 401(k) loan after you had defaulted on the loan and because a deemed distribution (code L on Form 1099-R) or in either plan if you made after-tax contributions to the 401(k) or to the pension plan (which some plans permit).

 

If you did roll over to a traditional IRA any after-tax basis from the 401(k) or pension plan, you needed to provide an adjustment to the basis shown on line 2 of the next Form 8606 you were required to file after the rollover occurred, along with explanation of the adjustment.  If you did not do that, that Form 8606 and all that followed were incorrect.

 

Of course the year-end balance in the IRAs that received these rollovers must be included on line 6 of Form 8606, but your question was about the basis.

View solution in original post

3 Replies
Critter
Level 15

Traditional IRA Basis if rolled over 401K and employer pension benefit?

Neither of those contribute to the basis ... they are both made pre tax. 

dmertz
Level 15

Traditional IRA Basis if rolled over 401K and employer pension benefit?

These rollovers do not change your basis in traditional IRA contributions if you had no after-tax money in your 401(k) or pension plan.  After-tax money in the 401(k) could have resulted from continuing to pay off a 401(k) loan after you had defaulted on the loan and because a deemed distribution (code L on Form 1099-R) or in either plan if you made after-tax contributions to the 401(k) or to the pension plan (which some plans permit).

 

If you did roll over to a traditional IRA any after-tax basis from the 401(k) or pension plan, you needed to provide an adjustment to the basis shown on line 2 of the next Form 8606 you were required to file after the rollover occurred, along with explanation of the adjustment.  If you did not do that, that Form 8606 and all that followed were incorrect.

 

Of course the year-end balance in the IRAs that received these rollovers must be included on line 6 of Form 8606, but your question was about the basis.

View solution in original post

mfrank
Level 2

Traditional IRA Basis if rolled over 401K and employer pension benefit?

Thank you both for your detailed reply

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