What You Need to Know
- Rolling from an IRA to a 401(k) can help clients avoid getting ensnared by the pro rata rule when doing a backdoor Roth conversion.
- Clients who work past age 72 may be able to delay RMDs from their 401(k) until they leave their job.
- Not all workplace retirement plans allow reverse rollovers.
Doing a reverse rollover — in which money is rolled from an IRA to a 401(k) — still makes sense for clients that want to take advantage of a “backdoor” Roth IRA conversion or delay required minimum distributions, according to Ed Slott and Ian Berger of Ed Slott and Co.
As it stands now, the backdoor Roth remains intact.
President Joe Biden’s Build Back Better package, which would have eliminated backdoor Roths, is all but dead, Berger, an IRA analyst at Ed Slott and Co., told ThinkAdvisor in a recent interview. Also, killing backdoor Roths hasn’t been floated in any bill that’s anticipated to be part of Secure Act 2.0 — at least not yet.
If Build Back Better is ”not dead, it’s pretty close to being dead,” Berger said. “If it’s resurrected, we don’t know if [eliminating backdoor Roths] would be part of it.”
“I can think of a few reasons” someone would do a reverse rollover, Slott added during the interview.
However, it’s important to note that first, a client “would have to have a company plan that allows the rollover” from an IRA to a 401(k), Slott said.
If they do, “maybe they want to get more money into their 401(k) — maybe they like the investments, maybe they like the creditor protection [in a 401(k)], maybe they do it to avoid RMDs because if you’re working in a company you can roll that money in and delay RMDs if you’re working past 72,” Slott said.