A friend wants to do a mega backdoor Roth conversion from his 401k. The company he works for acquired his prior company and he rolled his old 401k into his new 401k. As is normal for a mega backdoor conversion, they are telling him that when he converts his after-tax contributions to a Roth IRA, he will also need to pull the earnings on those after-tax contributions into a rollover IRA. That part all makes sense to me. The unexpected part is that they are also telling him that he needs to roll the money in his 401k that came from his old company's 401k into a rollover IRA. They told that is what their plan requires. Does that sound right?
Assuming that it is correct, what are the impacts of having this large rollover IRA? On the positive side, he now has the flexibility of an IRA rather than the restrictions of a 401k. On the negative side, he loses some legal protections (or does the ERISA protection carry over since it is a rollover IRA) and it will be in the way of any future backdoor (not mega backdoor) IRA conversions. Am I getting that right and am I missing anything?
Assuming that it is correct, what are the impacts of having this large rollover IRA? On the positive side, he now has the flexibility of an IRA rather than the restrictions of a 401k. On the negative side, he loses some legal protections (or does the ERISA protection carry over since it is a rollover IRA) and it will be in the way of any future backdoor (not mega backdoor) IRA conversions. Am I getting that right and am I missing anything?
Statistics: Posted by SomeGuy — Tue Jul 16, 2024 11:46 am — Replies 0 — Views 19
