Any CPAs/Tax Experts? I have a couple of questions...
My husband has some money that needs to be dealt with, and we are having trouble getting a straight answer as to what the IRS allows. We have two completely separate situations, but the question is similar for each. Our financial advisor could not help us, and a tax specialist I spoke to did not know the answer offhand either, which worries me.
Scenario 1:
DH took a lump-sum distribution of his pension from a former employer. While an employee there, he had to contribute to the pension. These are after-tax dollars. Teh payment came as 2 separate checks--the employer funds plus all earnings, which we already rolled over into a traditional IRA, and the employee contributions, which we would like to roll over into his Roth IRA. Can he do that, or will it show up as a contribution? (We are ineligible to contribute to a Roth.) What are other options? We do not want to take it as cash--it is retirement money.
Our financial advisor says "people do this all the time, but the IRS has not advised" on its allowability. We don't want to get hit with taxes and/or a penalty years down the road if the IRS decides it was NOT allowed.
Scenario 2:
DH's current employer allows after-tax contributions to his 401(k). If he takes these contributions, can he roll them over into his Roth? And same question as above: Is it viewed as a conversion (desired) or a contribution (not allowed for us)? If a rollover to a Roth is allowed, can we set it up so that the conversion happens before the contributions have any earnings, to avoid taxes on those?
DH was told (by a colleague) that this is allowed, but it seems like an unfair circumvention of the Roth limits. It would allow us to put many times more $$$ into the Roth than the normal contribution limits allow.
Has anyone dealt with this?
(And why is it that anything my DH touches is super complicated? I mean, who has ever even THOUGHT of these questions?)
Thanks!
DS '04 "Boogaboo"
DD '08 "Lilybear"