When you hear the word ‘rollover,’ you probably initially think of a rollover from a 401(k) to an IRA but another type of rollover exists! A reverse rollover is exactly what it sounds like, it’s when you move your money from an IRA to a 401(k). It’s great to know the option exists but when does a reverse rollover make sense?
If you’re working at age 70 ½
When you are 70 ½ years old, your IRA accounts will start ‘Required Minimum Distributions’ (RMD). RMD’s essentially force you to take money from your retirement account. If you are still working and don’t want to tap into your funds yet, you can take advantage of the exception to the RMD rule. Regardless of age, a worker does not have to take RMD’s from the 401(k) of his or her current employer unless they own 5% or more of the company. To avoid RMD while working, you can rollover your IRA into your current company 401(k), as long as the plan permits and you can postpone your RMD’s until you are ready for them.
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If you’re a high earner
Remember, the wonders of the backdoor Roth conversion? While individuals earning over $114,000 and couples filing jointly earning over $189,000 cannot contribute to a Roth IRA directly, they can contribute to a Traditional 401(k) and then convert it to a Roth. There are no income limits on Roth conversions. The only problem is that the Internal Revenue Service (IRS) requires conversion be done on a pro-rata basis, so you can be left with a big tax bill if your IRA has a combination of pre-tax and post-tax money.
Enter the reserve rollover to save the day! The Traditional 401(k) can only accept pre-tax dollars so after the reserve rollover, only after-tax money is left in the IRA and pre-tax money is moved to the 401(k). After the reverse rollover, you can then convert the Traditional to the Roth IRA and only pay taxes on the gains you incurred since opening the IRA.
If you want everything in one place
If you are working for a company, plan to stay for the considerable future, and their retirement plan offers a wide variety low fee investment options with very few other types of fees, it might make sense to do a reverse rollover from your IRA in order to consolidate your retirement accounts into one place. Having our retirement assets in one place can make for easy management and upkeep! So check the fees in the funds of that 401(k) plan before you start with the FeeX Investment Drive feature, and FeeX will do that work for you.