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After yesterday’s discussion of 401(k) rollovers, I did a little digging. While browsing the Internal Revenue Service site, I found this handy rollover chart [PDF]:
Click image to open full-size PDF chart in new window.
Notice that anything can roll into a Roth IRA (though sometimes with conditions), but a Roth IRA cannot roll into anything else. Obviously, this chart doesn’t provide details for each situation, but it can answer some quick questions. For more information, visit the section of the IRS site devoted to tax information for retirement plans.
I’ve found that the IRS web site is actually quite useful. The organization gets a bad rap (possibly deserved), but its web presence, at least, is outstanding. If you have questions about the tax implications of your retirement plan, this is a great place to do research.
This article is about Retirement, Tools Thursday, 24th April 2008 (by J.D. Roth)
April 24th, 2008 at 2:09 pm
Great chart. I have also found the IRS website pretty useful.
April 24th, 2008 at 2:12 pm
It makes sense that nothing can roll into a Roth other than a Roth. If I’m not mistaken, most everything on the chart is funded with pretax dollars, while Roth is post tax dollars.
April 24th, 2008 at 2:57 pm
Off-topic, but I just saw Millenium Bank (mlnbank.com) advertised in your sidebar. They have some VERY attractive accounts for both savings and CDs. The only problem is that I’ve never heard of them and I’m wary about putting my money into just any random bank I encounter online.
Do you or any of your readers know anything about Millenium? Are they reliable, etc?
April 24th, 2008 at 3:14 pm
Really, a great article find. I will have to look more at the IRS website for more similar information.
April 24th, 2008 at 4:27 pm
I also was tempted by Millennium. I checked their site and they are a foreign bank in the Grenadines. Deposits are not insured. That falls in line with the idea of higher risk = higher return. Although they claim investments are safe.
April 24th, 2008 at 7:35 pm
JD: Second that the IRS web site is outstanding!!
I have been able to *very* quickly find authoritative information on a variety of tax subjects, such as car donations, dependents, charitable giving, and other topics that helped us itemize deductions, even though we use Turbo Tax. I’m not a CPA, but I really don’t feel I need one to do our taxes, since the IRS makes the information easily searchable and downloadable.
As much as I dislike the IRS and disagree with the constitutionality of income tax, I’ll give them mad props for their web presence.
April 24th, 2008 at 7:35 pm
The IRS actually answers the phone too. I had an obscure question about LLC treatment in February, and it took me 6 minutes to get the right person on the phone who knew the exact answer. Try that in Europe.
April 24th, 2008 at 7:41 pm
Wow, what a great chart. I still don’t understand, though, how it could be that you could roll a whole other retirement account into a Roth if you’ve already contributed the max to a Roth every year. For example, if I put $5k (the max) into my Roth for 2008 and also $5k into a 403(b), can I roll that into the Roth immediately and have a total contribution to my Roth of $10k for the year?
April 24th, 2008 at 8:07 pm
@jtimberman - don’t blame the IRS for the structure of the tax code or their enforcement. That’s Congress’s doing - so vote the bums out!
April 25th, 2008 at 5:16 am
The IRS website really isn’t all that bad at all, I completely agree. Interesting chart.
April 25th, 2008 at 5:51 am
@feedthefam - Yes, you can max out your Roth contribution for the year and still rollover money from another plan. Rollovers do not count towards your contribution limit for the year.
@JD - I agree the IRS website is very useful. As a financial planner who also completes tax returns (not my favorite part of the job), I use the IRS website A LOT during tax season. I still use it quite often throughout the rest of the year as well.
April 25th, 2008 at 8:12 am
@Paul Williams - Thank you for the info. What an interesting concept. I may have to look into doing that this year.
May 5th, 2008 at 11:54 am
Can I ask a (possibly dumb) question?
I know that you have to earn less than $114,000 annually to be eligible to contribute to a Roth IRA. Suppose you start a Roth IRA in your 20s but somewhere down the line you move up the ladder into a higher tax bracket that makes you ineligible to contribute to your Roth.
What happens then? Does that account go untouched until retirement (assuming your AGI doesn’t decrease)?
May 29th, 2008 at 6:28 pm
The fact that “the retirement system” requires a chart like this is exactly why some people are afraid to even begin investing.
August 20th, 2009 at 11:07 am
If you take the standard deduction (i.e., you do not itemize) then you get no tax benefit. It you itemize, and your total itemized deductions exceed the standard deduction amount, then your taxable income will decrease by $1000. Depending on your marginal tax rate, your taxes will decrease by $100, $150, $250, $280, $330, or $350.
October 12th, 2009 at 4:01 am
Dear FeedtheFam,
Don’t confuse Roth contribution limits with conversions. Contribution limits only apply to “new” money.