My wife has a solo 401k and is now retired. We are contemplating moving some of her qualified IRA money into the 401k to get the IRA balance down before performing a Roth conversion (her IRAs contain some after-tax contributions).

My concern is that if the stock market recovers after we bolster the 401k, we could exceed $250K there and be required to file Form 5500 or 5500-EZ.

I suspect that we'll be eligible to file 5500-EZ but hope to hear verification in a reply to this post.

How onerous is Form 5500 or (hopefully) 5500-EZ?

The forms do not appear in TurboTax, which I normally use. Consequently, I'm somewhat intimidated.

Thanks,

Michael

The 5500 ez is certainly easier than the 5500. And with good software like Third party administrators use, it is very easy. I would think that it would be a big bother to you to read all of the directions to do one return.

Could you roll some of this IRA to another IRA and still have the same results?

The 5500EZ is a one page form that is easy to complete. The IRS website has forms that can be viewed, downloaded or printed as well as instructions.

http://www.irs.gov/formspubs/index.html?portlet=3

If your wife plans to stay retired, why continue her 401(k)? I would seriously consider terminating the 410(k) and rolling to an IRA. Why pay for maintenance on a plan you are not using? Even if you are not paying administration fees, there are still interim amendments and periodic restatements needed for the document.

From what I gather, IRS views all of a person's IRAs as one big IRA and charges tax on a conversion based upon the percent of post-tax money compared to all of the combined IRA amount. For example, if a person has $100K in one IRA with $50K of it being post-tax contributions and another $100K IRA all pre-tax, any conversion of any amount from either IRA would only be taxed at 75% of the total transfer (150K/200K being pre-tax). I believe that a person can move the second IRA into a 401k and then make the conversion with only 50% of the amount being taxed ($50K/100K).

If I am wrong, I hope someone will correct me.

Thanks,

Michael

Solo 401k at TD Ameritrade = no fees

Balance < $250K limits reporting requirements.

Keeping the 401k separate reduces taxes on conversions to a Roth IRA from a traditional IRA with post tax contributions in it.

At least, that's what I believe.

If I am wrong, I hope someone will correct me.

Michael

Michael, a couple of things...

FYI, you can't download a Form 5500-EZ from the internet and use it. You have to order a special form with drop-out ink; ordering instructions are on the sample form that you can download. You'll find completing the form kind of a pain but not impossible.

And, just FYI, you will have to (I guess I should say you're supposed to) file a final 5500-EZ when you finally terminate the 401(k) plan, even if assets never exceed $250K. I think that rule is widely ignored.

I started out thinking you were wrong about needing to aggregate the IRAs for conversion tax purposes, but now I think you're right...a conversion is just a variation on a taxable distribution and you do have consider after tax monies. I never much liked non-deductible IRAs anyway...

You aren't reducing the taxes when you put the one IRA (with 100% deductible contributions) into a 401(k) plan before converting the other IRA to a Roth, because eventually the 401(k) will have to be distributed and tax paid on the entire amount. Bottom line is that you will have to pay tax on all deductible IRA contributions at some point in time whether as a result of distributions from the IRA, or a conversion to a Roth, or distributions of the rolled-over IRA when it comes out of the 401(k)--so, to me, the real issue is how much of the IRA you want to convert. Maybe you've already made that decision.

I'm also wondering if you can directly transfer from an IRA to a qualified plan other than pro-rata as to basis (i.e., deductible vs. non-deductible). Seems to me that since a traditional rollover is considered a pro-rata distribution of deductible & non-deductible contributions, that a direct transfer rollover should be the same.

Sieve,

My wife and I are in 59 +/- 1 years old. Our hope is to wait until 70 before tapping Social Security. In the mean time we hope to convert a lot of tax-deferred money to Roth IRAs. When we tap into SS, we can shelter that SS income from taxes by drawing down the Roths (assuming that we have managed to minimize RMDs by depleting tax-deferred accounts in the interim). I agree that we will ultimately pay taxes on the 401k money but believe that we are better off postponing tax payments... other than those on the Roth conversions.

It is my understanding that you can move untaxed money from IRA accounts to a 401k and leave the post-tax money behind for conversion to a Roth IRA, thereby minimizing current tax liability.

Thanks for taking time to comment.

Michael

Even for the plan document and amendments? No one works for free. If they are providing services, they are getting paid. You may have no out-of-pocket expenses for the plan, but that just means they are getting paid from the assets. It wouldn't hurt to ask what level of indirect compensation they are getting from the assets in your plan so you can compare it to IRA fees. We are waiting on final DOL regulations that will force plan providers to disclose indirect payments they and their affiliates receive, but they are not out yet.

Kevin, I'd guess that there is no layer of indirect expense or compensation on this account versus an IRA account. Ameritrade is absorbing the costs for providing the document, which means that it is being spread among all shareholders. While I have reasons to object to them providing documents, hidden costs is not among them.