By Andy Ives, CFP®, AIF®
IRA Analyst
QUESTION:
I have a 401(k) plan with a previous employer that is a mix of pre-tax and Roth money. I’m considering a direct rollover of the 401(k) to an IRA. How would that work since it’s a mix of pre-tax and after-tax funds? Would I need to open separate rollover and Roth IRAs?
Thanks,
Greg
ANSWER:
Greg,
If you do not already have any existing IRAs, you will need to open a traditional IRA and a Roth IRA to receive the 401(k) rollover. The pre-tax funds in the 401(k) will be rolled over to the traditional IRA, and the Roth 401(k) dollars will go to the Roth IRA. If you do have existing IRAs (traditional or Roth), the 401(k) dollars can be rolled over to the respective current IRAs. There is no reason to keep the rollover dollars in a different IRA (traditional or Roth) if you don’t want to.
QUESTION:
What options are available for a non-working spouse to contribute to a traditional/Roth IRA, provided her significant other is employed and has compensation?
Respectfully,
Richard
ANSWER:
Richard,
If a married couple files a joint tax return, the spouse with no compensation can make an IRA contribution based on the compensation from the working spouse who has compensation. The same annual contribution limits apply as do the phaseout ranges for Roth IRA eligibility. Other than this being called a “spousal contribution,” there is no difference between a contribution based on one’s own compensation vs. a contribution based on a spouse’s compensation.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/401k-rollovers-and-spousal-contributions-todays-slott-report-mailbag/
