Work 401k to Roth IRA conversion IRS rules

[Mephistopheles]

Hello all

 

Question for business owners who may have had to go through this.

 

I have a 401k at my former employer (my dad) with Fidelity. Now I'll be converting to a Roth IRA. The plan administrator is charging business owner (my dad) $175 to move the money and prepare the IRS filing.

 

My question:

 

Can we just bypass going through the administrator and have Fidelity move the money to my brokerage, Merrill? I'll of course be filing the conversion and pay the applicable taxes, so is it necessary for the business owner to have IRS paperwork for this transfer. Trying to figure out if this $175 conversion fee is worth it?

[tede02]

What exactly is the $175 being charged for? If the conversion part of the transaction is creating the fee, I would just roll the money out of the plan into an IRA and then do the conversion which usually has little to no cost at the major online shops (Schwab, Fidelity, TD, etc.).

[Mephistopheles]

The $175 is to create the IRS paperwork for the employer when filing. Trying to figure out if 1) whether the employer needs to report to the IRS when an employee rolls into a Roth. 2) if needed can my dad just do it on his own?

[tede02]

If the rollover is direct (trustee to trustee) I think the answer is yes; the plan has to code the distribution as going to a Roth so the IRS can cross check this against the 5498 form that will be filed by the receiving financial institution. But again, I think you can get around this fee and any worries by first doing a direct rollover to an IRA. Then convert the IRA to Roth. In my view, this creates a cleaner paper trail to follow anyway.

[stahleyp]

I agree with ted. I don't see why it wouldn't be easier to do a direct rollover to IRA and then convert to roth.

[Mephistopheles]

Thanks guys, I think I found the solution, will be moving from 401k to IRA

 

Apparentlly according to the 401k administration company, the business owner still needs to generate forms, and for book keeping, etc. whatever all that means, they are still charging the $175. Still it's easier to do into Traditional IRA so that's what I will do