Home › Forums › Financial Markets/Economics › Finance Gurus: rollover of 401k and Roth 401k accounts
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ucodegen.
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July 27, 2017 at 9:31 PM #807322July 27, 2017 at 9:58 PM #807323
ucodegen
Participant[quote=SK in CV]
IRA distributions aren’t reported on Sched D. Ever.[/quote]
Never said they did, I was giving example of the additional reporting required of brokers – beyond what some people believe.[quote=SK in CV] IRS requirements for brokerages recently (maybe 4 years ago) increased to require reporting of basis of securities which are sold in non-retirement accounts.[/quote] As of 2011. See the link provided in previous.
[quote=SK in CV]The IRS does not keep the info of your purchases every year. Brokers report the basis (if available) of what you sold every year. This has nothing to do with IRA distributions.[/quote]
Didn’t say the IRS keeps the info on your purchases every year. Again, see the link provided on increased reporting – it mentions reporting basis on sale. Again, prev link search for ‘adjusted’. I didn’t say it did have anything to do with IRA distributions.[quote=SK in CV]The IRS runs matching programs on all returns, irrespective of income. If income that was reported on 1099’s or W-2’s or other income/deduction reporting isn’t consistent with what was reported on returns, correction letters are issued if the amount is sufficient. They’ve been doing this for decades. This also has nothing to do with recovering non-deductible IRA contributions.[/quote]I think it is a little more than matching .. there is also a ‘plausibility test’ vs changes in deposits etc. They have not been doing this for decades because before about 2010, they did not have the ability to do electronic forms, OCR on paper forms(reliably) etc. Instead they had to do the hand check on specific returns, often chosen on income (higher income, more likely significant amount involved in the error (intentional or otherwise)). The coverage, check has moved down to lower incomes as the years go by because of the available compute power. I came across the boundary in income by watching when the IRS started picking up ‘nits’ on my returns. When my income started approaching $100,000/yr, the IRS started identifying small nits. I don’t know what the IRS would be considering significant enough.
What it has to do with recovering non-deductable IRA contributions has to do with year to year record keeping. You seem to be assuming that the IRS is working with a snapshot of one year only. I am saying that they are not and that they have a multi-year record and records of carrying balances/amounts ie. loss carryover and non-deductable IRA contributions to date. I don’t think the records go back before 2011 for the most part.
July 27, 2017 at 10:26 PM #807324Participant[quote=SK in CV][quote=ucodegen]Oh yes, a nit to pick –
[quote=SK in CV]Those cumulative non-deductible contributions are supposed to be reported on tax returns every year (on form 8606), even if no new non-deductible contributions have been made for the tax year.[/quote]
[/quote]Pick away. You’re wrong, irrespective of your limited reading of the instructions. Basis of non-deductible IRA’s, net of prior year cost recovery, is reported on line 2 of form 8606. It is practically the only proof that the IRS will accept that you’ve maintained the records. They (The form 8606) can, in fact, be filed as a stand alone form. You can file them late all the way back to 1995, though it’s conceivably possible for failure to file penalties to be assessed. I’ve never seen that penalty assessed for a late filed 8606. I have prepared dozens for clients, in order to fix their improperly prepared returns.[/quote]
Then you are saying that the form wording disagrees or is in dispute with the actual laws governing the reporting? Are you saying that the form instructions are in disagreement with the actual laws governing reporting? The reason why they only want changes is because it (the amounts you report) is being tracked by the IRS. I don’t see how it proves that you have maintained the records – though maybe I am a weird case since I have all my tax records back to at least 1987. If the forms and instructions effectively state file ‘only’ on change, the IRS is on a weak foot legally should they expect more. Are most of the people you are filing for in a position where they are drawing down IRAs? Maybe you are just being more thorough, but I don’t see any ‘requirement’ for the every year filing unless changes – conversely I see support for the argument for filing only on change:See “who must file” on the following;
https://www.irs.gov/instructions/i8606/ch01.html
https://www.irs.gov/pub/irs-pdf/i8606.pdfJuly 27, 2017 at 10:56 PM #807325Participant[quote=flu]Sure. The managing firm I don’t think really matters. I think it has to do with what the employer and managing firm’s agreement.[/quote]
True, but I have seen situations where the employer places someone with no investment knowledge in charge of negotiating the agreed upon plans with the manager of the company’s 401k plan. The result is a bunch of high fee crap. In one company I was with, a group of employees had to get together and strong arm the company to negotiate better offerings with the manager of the 401k plan.
I have also seen managers of a company’s 401k plan advocate constant re-balancing – not telling the employees that every time the account gets ‘touched’ by a transaction(ie re-balancing), there is actually a transaction fee – it ain’t free. Re-balancing can help returns – but not at the frequency the 401k managers propose.
[quote=flu]Broadcom Limited’s 401k is managed by Fidelity. There are a total of 28 different investment options, and there’s an option to do a self directed brokerage account (which I would never do, since I don’t want to screw up what’s suppose to be a “safer” retirement account.
Within the plan, there are the typical Fidelity funds (such as Contrafund, etc)… And there are also Vanguard funds. There’s a vanguard index fund for S&P500, small cap, mid cap, international, reit, and world index. And there’s the N different “target blend funds”…
[/quote]
Considerably better than several of the companies I was with. They only had from 6 to 8 funds to choose from… and the company stock. A lot of the funds you listed are good funds, I think I have 2 of them in my Roth and direct taxed investment accounts (vanguard small and mid cap index)[quote=flu]
My current employer’s 401k is through Schwab, and a small administrator. Fund selection is roughly the same. I kinda want to roll that out because I don’t trust that plan administrator, for some reason. YTD on that account so far is 9.84%.. Slightly lower, because I left a bigger portion in money market… The former 401k, so far is 11.2%, with about 1/3 left in cash.[/quote]
Trust is important. To what account/brokerage are you going to roll it over to? I don’t know if you can roll it into a previous employers 401k. It may depend upon that plan. Note that when you roll it out to a brokerage held 401k, you loose the option of the institutional funds (note that there may be exceptions on this). Vanguard had non-institutional versions of many of its funds, though the load is a little bit higher due to handling more (in count not dollars) transactions. I see the Vanguard small cap index institutional(VSCIX) listed above, that would not be available on a roll-over to a standard brokerage roll-over account. The rough equivalent to VSCIX is NAESX (and yes it is a Vanguard fund).July 28, 2017 at 6:00 AM #807327SK in CV
Participant[quote=ucodegen]Then you are saying that the form wording disagrees or is in dispute with the actual laws governing the reporting? Are you saying that the form instructions are in disagreement with the actual laws governing reporting? The reason why they only want changes is because it (the amounts you report) is being tracked by the IRS. I don’t see how it proves that you have maintained the records – though maybe I am a weird case since I have all my tax records back to at least 1987. If the forms and instructions effectively state file ‘only’ on change, the IRS is on a weak foot legally should they expect more. Are most of the people you are filing for in a position where they are drawing down IRAs? Maybe you are just being more thorough, but I don’t see any ‘requirement’ for the every year filing unless changes – conversely I see support for the argument for filing only on change:
[/quote]
Based on my experience of teaching classes for CPA’s and EAs on on how to report retirement income for the last decade, and preparing somewhere around 12,000 returns over the last 40 years, I’m telling you what the law is.
July 28, 2017 at 6:11 AM #807328
CoronitaParticipantI’m going to talk to vanguard to see if I can roll them into Vanguard accounts.
If not, my vanguard accounts have access to the Admiral Shares version of the index funds, regardless of how much i’m invested in those funds.
I think i meet the minimum account requirement to qualify for Admiral shares for any of the major indexes.So for small cap, it would be VSMAX with a 0.06% expense ratio
versus 0.05% for the institutional…. I’m going to check if I can roll into my old 401k/roth401k. but I doubt they will allow that…Smaller companies, I just don’t trust the plan administration, so I don’t mind pay a little extra expenses to keep them in my own accounts. It does makes backdoor roth iras nearly impossible.
Also, some states have reduced creditor protection for IRA versus ERISA style plans (like the 401k)…In CA, rollover IRAs have the same protection as ERISA plans, at least as ruled by an appellate court in McMullen v. Haycock. I don’t know if that’s one other reason to keep rolled over funds separate…..you know, planning for the worst case scenarios ….
http://www.latimes.com/la-ira-story3-story.html
https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira
https://sdirahandbook.com/california-rollover-iras-can-receive-erisa-style-creditor-protection/July 28, 2017 at 8:25 AM #807332no_such_reality
ParticipantSK, let me check if I’m following.
Come time for me to start taking my minimum withdrawals, the only thing that matters is the balances on my ROTh accounts versus my non-ROTH accounts at the government appointed date.
Regardless of were I withdraw the money, if I have $200K in ROTH and $800K in IRA, by tax basis on any money taken from those accounts will be 80% taxable as if it came from the IRA, even if I take it all from the IRA (or ROTH).
The next year, the ratio is again checked, and the new ratio used.
Assuming laws remain the same. Do I have that about right?
July 28, 2017 at 8:56 AM #807333Participant[quote=no_such_reality]SK, let me check if I’m following.
Come time for me to start taking my minimum withdrawals, the only thing that matters is the balances on my ROTh accounts versus my non-ROTH accounts at the government appointed date.
Regardless of were I withdraw the money, if I have $200K in ROTH and $800K in IRA, by tax basis on any money taken from those accounts will be 80% taxable as if it came from the IRA, even if I take it all from the IRA (or ROTH).
The next year, the ratio is again checked, and the new ratio used.
Assuming laws remain the same. Do I have that about right?[/quote]
No. Roths and traditional IRAs are treated entirely separately.
I think maybe I wasn’t clear enough about non-deductible contributions. Those are NOT the same as Roth contributions. For taxpayer who have made non-deductible contributions to traditional IRA accounts, the important numbers are total FMV of all IRAs and amount of non-deductible TRADITIONAL IRA contributions.
Roths are treated by an entirely different set of rules. Very simple if the Roth’s have been around for 5 years or more and distributions are after age 59 1/2, then all tax free (which makes them qualifying distributions). Non-qualifying distributions are a little more complicated, but generally, non-deductible contributions come out first, rather than ratably.
July 28, 2017 at 11:01 AM #807336ParticipantThanks.
July 28, 2017 at 2:00 PM #807339Participant[quote=flu]
Also, some states have reduced creditor protection for IRA versus ERISA style plans (like the 401k)…In CA, rollover IRAs have the same protection as ERISA plans, at least as ruled by an appellate court in McMullen v. Haycock. I don’t know if that’s one other reason to keep rolled over funds separate…..you know, planning for the worst case scenarios ….http://www.latimes.com/la-ira-story3-story.html
https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira
https://sdirahandbook.com/california-rollover-iras-can-receive-erisa-style-creditor-protection/%5B/quote%5D
The loss of protection is one thing that has always concerned me, but more than one company I was at had poor choices on their 401Ks.. so I had to bite that bullet. As I am nearing retirement age, I am looking more towards the mentioned states. It would be nice if the fed would step in and make it all consistent – protected if in company 401k or self directed – protected from lawsuits/creditors – since 401ks are now replacing pensions at most companies. -
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