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How to Roll Over an IRA Into a Qualified Plan

Though uncommon, there are several good reasons to do an IRA-to-plan rollover.

Natalie Choate, 10/13/2017

Question: Why would someone "roll" money from their IRA into their employer's qualified plan (e.g. a 401(k) plan)? And exactly how would they do that?

Answer: Though rollovers in that direction are not common, there are several reasons why someone would do such an "upstream" rollover.

For example, Andy has $500,000 in his IRA, of which $40,000 is after-tax money arising from his nondeductible contributions to the IRA over the years. He wants to roll the pretax money into his 401(k) plan so he can then, later, do a tax-free Roth conversion of the after-tax money left behind in the IRA.

Betty is concerned about potential creditors' claims. She has no debts now, and no plan to incur any, and carries good liability insurance, but still worries about getting sued for some uninsured claim. By moving money from her IRA to her employer's pension plan, she believes it will be safer from any potential lawsuit against her.

Carl works for an investment company which gets outstanding results for employees' money in the company 401(k) plan, but the company doesn't manage IRAs. By rolling his IRA into the company plan, Carl can access the superior investment performance offered by his employer.

Donna will turn 70 1/2 next year. She is still working for a university and has no plans to retire for at least five years. She will not have to take any required minimum distributions from the university's retirement plans until she retires, but she'll have to start taking RMDs from her IRA when she turns 70 1/2, regardless of how hard she's working. By rolling the IRA into her university retirement plan, she gives the IRA money the status of "qualified plan money"--and will have no RMDs until she retires.

The tax code does allow IRA money to be rolled into a qualified plan, subject to a few rules. One requirement (unique to IRA-to-plan rollovers) is that only pretax money can be rolled in that direction. A qualified plan cannot accept a rollover of after-tax money from an IRA.

Though the code section permitting IRA-to-plan rollovers has been around a long time, plans were hesitant to accept rollovers from IRAs because the plan administrator had no practical way to know he was getting only pretax money when he got a check from an employee's IRA. The IRS finally fixed that problem in 2014, issuing clear rules for how to do these rollovers.

Natalie Choate practices law in Boston with Nutter McClennen & Fish LLP, specializing in estate planning for retirement benefits. Her book, Life and Death Planning for Retirement Benefits, is a leading resource for professionals in this field.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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