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Blogs - Ask Ed Slott
Ask Ed Slott: Your IRA Expert
Tuesday, November 6, 2012

I turned 70 1/2 this year and I am retiring before the end of the year. I understand I need to take my RMD from my 401(k) before I can transfer it to an IRA. I have before-tax and after-tax money in my 401(k). If I move it to an IRA, can the after-tax money be moved to a Roth IRA instead of receiving a check for that amount? Thank you.

IRS Notice 2009-68 says that if a direct rollover of only part of your funds is made (and some is paid to you), each distribution includes a pro-rata amount of the after-tax funds. It appears that the only way you could rollover only the pre-tax funds to your IRA and only the after-tax money to your Roth IRA would be to have the entire amount paid to you (i.e., not choose a direct rollover) and use the 60-day rollover rule. You could then fund the IRA first and the Roth IRA last. However, the 20% withholding rules would apply to the pre-tax portion. You would have to be able to make up the withheld amount from other personal funds. Any overpayment of taxes would be refunded to you when you file your tax return. This is a controversial topic and tax advice is needed. Further IRS clarification is needed. Your RMD cannot be rolled over.

Can a non-governmental eligible 457(b) plan be rolled into an IRA?  I´ve checked five different sources and three of them say "no" and two of them say "yes" it can. 

Who’s right?

Only governmental 457(b) plans can be rolled over to an IRA. Non-governmental 457(b) plans cannot be rolled over to an IRA.

I am in the middle of a bankruptcy and my attorney told me I could legally put some money into an IRA to protect it. I have done some research and found that you can only deposit $5,000 a year into an IRA. I have more than that to work with. I need some help with this, and I hope you can help.

The annual IRA contribution limit is $5,000 (or $6,000 is you are age 50 or older this year). If you roll over employer retirement plan money to an IRA, those rollover funds will be protected in bankruptcy. Other funds cannot be put into an IRA.

(1) Comment
I didn't have to think twice. I was glad to get my money out of wall street before they looted it. Most all of the money there was money I put in. I avoided loans from commercial banks and pay day lenders and made loans to myself from that 401K. The interest collected went to me. Now it sits in a FDIC insured IRA. I could care less now about what wall street is doing. Capitalism works great on other peoples money. As for me the wealthy will have to spend their own.
Posted by Megan S | Tuesday, February 26 2013 at 3:30AM ET
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