How to Rollover My Traditional IRA to a 401k Without Tax Penalties

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The Internal Revenue Service allows people to move money from one qualified retirement account to another. Typically, people move money from their 401k plan to a traditional IRA for more flexibility in investment options. However, if you are happy with your 401k investments and your 401k offers higher returns or lower fees, you may want to move money from your traditional IRA to your 401k plan. If you perform the rollover correctly, you will not owe any tax penalties.

Things You'll Need

  • Form 1040 or 1040A
  • Ask your 401k plan administrator or check your 401k plan rules to make sure your 401k plan accepts rollovers from IRAs. Though 401k plans are permitted to accept IRA rollovers, not all plans do.

  • Request a distribution from your traditional IRA using the appropriate withdrawal request forms from your financial institution. The forms differ slightly, but you will always need to provide your personal information, including your Social Security number, your account information, how much you want to take out and how you want the money paid to you. You will only receive 80 percent of the amount you request because 20 percent will be withheld for the penalties you would owe if you fail to complete the rollover.

  • Redeposit the entire amount you requested into your 401k plan within 60 days to avoid any tax penalties. For example, if you requested a distribution of $48,000, you would only receive $38,400, but you would have to put back $48,000 into your 401k plan to avoid penalties. If you only redeposited $38,400, you would owe tax penalties on $9,600.

  • Report the rollover on your income taxes using form 1040 or form 1040A. On form 1040A, report the amount of the rollover on line 11a and the undeposited amount (even if $0) on line 11b and write "rollover" next to line 11b. On form 1040, report the amount of the rollover on line 15a and the undeposited amount (even if $0) on line 15b and write "rollover" next to line 15b. You will not be charged penalties, but you must still report the rollover.

Tips & Warnings

  • You can only roll over money once per 12 month period.

References

  • Photo Credit TAX TIME image by brelsbil from Fotolia.com
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