Question about 401k rollover to IRA and checks received

Submitted by bulls2030 t3_yhuvt4 in personalfinance

I switched jobs earlier this year and had a roth 401k at my old company. I just requested a rollover and the 401k company sent me two checks to deposit into my IRA account.

In the cover letter it mentions that Check A $ABC represents the pre-tax amounts of your rollover distribution from the referenced plan. Check B $DEF represents the ROTH portion of your rollover distribution from the referenced plan.

Why did I get 2 separate checks? And what does each check mean?

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DeluxeXL t1_iuft2wz wrote

Pretax 401k and Roth 401k are two separate subaccounts in your overall 401k plan account.

  • You must roll over the Roth 401k to Roth IRA or the Roth 401k at your new job. Roth cannot be rolled over to traditional.
  • You should roll over the pretax 401k to your traditional IRA or the pretax 401k at your new job.
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slayerdork t1_iuftbn0 wrote

It sounds like you had both traditional and Roth balances in your 401(k). Contact your IRA custodian for next steps. They will likely have a form that you need to fill out and mail with the checks.

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DeluxeXL t1_iuftele wrote

Replying to bulls2030 (#362,715)

> I have a ROTH IRA account I was planning to rollover to. Is that okay?

Yes.

  • Roth 401k --> Roth IRA: No tax.
  • Traditional 401k --> Roth IRA: Amount rolled over is ordinary income in the calendar year of rollover.
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ThunderDrop t1_iuftm26 wrote

I assume your previous employer had some sort of contribution matching. Something like if you put in at least 3% of your paycheck, they will match with another 3% of extra money.

While you chose to make your contributions Roth(after tax), employer contributions are always traditional(pre tax).

These funds have to go into the correct types of accounts. Traditional into traditional and Roth into Roth or you will make a mess of your taxes.

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bulls2030 OP t1_iufttvv wrote

Replying to ThunderDrop (#362,807)

Yes they did have contribution matching. Oh i see. I didn't know that. So would it make sense to rollover the pretax contributions to my Roth IRA or open a Traditional one?

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Church42 t1_iufu7n8 wrote

Replying to bulls2030 (#362,805)

Create a traditional IRA. Roll the pre-tax dollars into that IRA and your Roth check into your existing Roth IRA

Your check for pre-tax was likely your employer match and the accompanying growth that occurred before the cash out.

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ThunderDrop t1_iufutzw wrote

Replying to bulls2030 (#362,872)

That really depends on two things.

If you would rather pay income tax on those employer contributions this year or in some future year. Basically if you think you will be in a lower tax bracket now or later.

And if you think your income will ever be large enough that you will no longer be able to directly contribute to a Roth IRA and will want to use the "backdoor" method. (currently $140kish for single and $220kish for married) if you think you will use the backdoor someday, the existence of an old traditional IRA complicates things.

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