Yes, you can roll over an IRA into a 401(k) – here’s how

Many folks have experience transferring their 401(k) into a new 401(k) or IRA when they switch jobs, but can you roll over an IRA into a 401(k)? 

Yes, and it’s called a reverse rollover. It’s uncommon, but there are some advantages come retirement time. It typically happens when someone who previously relied on a self-directed IRA starts a new job that gives them access to a 401(k). 

There’s an exception for Roth IRAs, though. You can’t transfer a Roth IRA into a 401(k) — Roth or traditional — because a Roth IRA uses after-tax funds. 

It also depends on your employer and a few other eligibility details, which we’ll get into below, as well as a step-by-step overview of rolling your IRA into a 401(k).

Reverse rollover: IRA to 401(k)

A reverse rollover allows you to transfer your traditional IRA funds into a 401(k) to help kickstart a new account, open opportunities for a Roth IRA conversion, and potentially delay required minimum distributions (RMDs). 

We’ll cover these benefits more below, but first, you need to know if you qualify for a reverse rollover.

As long as your 401(k) plan provider allows it and you’re transferring a traditional IRA, you should be able to complete a reverse rollover without much trouble. But, some eligibility hurdles might pop up. 

Eligibility

We’ve covered a few eligibility guidelines, but here’s everything you need to know before beginning a rollover:

• Not all 401(k) plans permit rollovers, so check in with your plan administrator or employer’s HR to learn what options are available to you. 
• You can’t roll over a Roth IRA into a 401(k), even if it’s a Roth 401(k). 

Once you confirm that your 401(k) plan accepts rollovers and that you have a traditional IRA that qualifies, you can start the rollover process.

How to roll your IRA into a 401(k)

The IRA-to-401(k) rollover process is simple and follows the same steps as any other IRA rollover. You have two options:

1. Direct rollover: Let your plan administrator know that you want a rollover and what account you’re rolling over to, and they’ll connect with the new plan provider and handle the transfer for you. 
2. Indirect rollover: Contact your plan administrator and receive a check with your IRA balance. Then, deposit it in your 401(k) within 60 days. This is simple but you’ll owe taxes and fees if you miss the deadline. 

We highly recommend a direct rollover to avoid any mistakes that will trigger an income tax or early withdrawal penalty. It’s easier for you anyway, and it guarantees your entire retirement savings are safe in the tax-advantaged account of your choosing. 

An indirect rollover is your only option if your plan doesn’t permit direct rollovers. Your plan provider will withhold 20% of your distribution to cover any taxes and fees you incur if you miss the 60-day window. If you go this route, it’s worth seeing if you can waive the 60-day requirement for a little peace of mind. 

An indirect rollover  can also help you get quick cash from your IRA, if you plan to only transfer some of your account balance to a 401(k), but it’s risky. 

How to report your IRA rollover

You can’t just roll over or transfer thousands of dollars and not tell the government. Come tax time, your plan administrator will provide a 1099-R form for you to report your traditional-to-traditional account rollover on your 1040 tax return. 

Before you submit your information, make sure the provided 1099-R is correct. Take special care with these details:

• Box 1: Gross distribution
• Box 2a: Taxable amount (blank in a direct rollover)
• Box 7: Distribution code (code “G” for direct rollovers)

You’ll submit this information with your tax return, adding it to these sections on Form 1040:

• Line 5a: Pension and annuities (Box 1 of 1099-R)
• Line 5b: Taxable amount (Box 2a of 1099-R – blank in a direct rollover)

Your state taxes might differ, so consult a financial advisor or tax professional to make sure you report the rollover correctly.

Why you should consider a reverse rollover

Rolling your IRA into your 401(k) isn’t super common, but it has advantages. Compare these benefits to the disadvantages below to determine if a reverse rollover is the right call.

Consolidate your retirement accounts for easy management

Some investors like the ability to hand-select their investments with an IRA while also banking employer-match contributions with their 401(k), and multiple accounts work well for them. 

Others, not so much. Maintaining multiple accounts requires some extra time, attention, and organization. It also means more administrative and investment fees to pay. 

Consolidating your accounts makes keeping track of your account numbers, retirement balance, and investments easier while cutting out some excess fees. If your IRA isn’t benefiting your tax strategy, a reverse rollover could bring more convenience. 

Access your money for early retirement

Have you heard of the Rule of 55? It’s a 401(k) advantage that allows you to begin distributions early if you’ve quit or lost your job the year you turn 55 or older. 

If you’re a public firefighter, law enforcement officer, or other “qualified public safety employee,” you might even qualify for penalty-free distributions at age 50. 

These distributions bypass the 10% early withdrawal fee, but you’ll still have to pay income taxes. If you’d like some retirement age flexibility or an extra financial safety net as you age, an IRA to 401(k) rollover could help. 

More protections from creditors

Both 401(k) and IRAs have safeguards to protect your assets from creditors if you run into financial trouble. Your retirement assets are safe if you file for bankruptcy or someone sues you.

But, ERISA, the Employee Retirement Income Security Act of 1974, provides federal protections to employer-provided plans like 401(k)s. These don’t have an asset limit, so you’re covered no matter how large your 401(k) balance is. 

However, ERISA can’t protect defaulted 401(k) loans or lawful orders regarding assets in divorce. 

Depending on where you live, IRAs also have federal protections and may receive state protections. But, the federal bankruptcy protections max out at $1,512,350 as of 2022.

Gain flexibility with 401(k) loans

Some 401(k) plans permit loans, so you can borrow against your balance and repay it with interest. It’s a nice option when you have unexpected expenses or want to invest in another financial goal, like buying a house, without depleting your retirement account. 

Obtaining a 401(k) loan is pretty simple. Once approved, you receive the funds and have five years to repay the balance with interest, but no penalties or taxes. 

You can generally borrow up to 50% of your account balance or $50,000, whichever is less, though employers can set their own limits. The payments and interest all return to your 401(k) balance to preserve your retirement savings.

On the flip side, IRAs don’t permit any withdrawals. You can’t borrow from an IRA, but you can make early withdrawals with a 10% penalty fee. 

Delay required minimum distributions (RMDs)

Both IRAs and employer-provided retirement plans enforce required minimum distributions starting at age 73 (except from designated Roth accounts as of 2024). This means you have to withdraw a specific amount of money from your account each year from that age on. 

However, you can theoretically delay your 401(k) RMDs for as long as you’re working. So, if you plan to work well into your 70s, you can kick the RMDs down the road if you keep your funds in a 401(k). Note that the IRS doesn’t permit this delay if you partially own (5% or more) the business sponsoring the retirement plan. 

Lower cost plans

Many retirement plans charge administrative and investment fees, and some 401(k)s have fewer fees than IRAs. 

This really depends on your employer and the plan. Large companies with actively managed funds often have more affordable investments, but it’s not a guarantee. 

On the flip side, you typically have fewer investment options in a 401(k) and they’re chosen by your employer. So, if all of the provided choices charge expensive investment fees, there’s not much you can do about it. In this case, you can find your own low- or no-fee IRA broker. 

Your 401(k) provider might also include free professional advice, which could offset the costs of a paid advisor. You’ll have to get the details to decide which is most cost-effective. 

Why you shouldn’t do a reverse rollover

Both accounts have their perks, so rolling an IRA into your 401(k) isn’t a guaranteed win. Read through some of these disadvantages and weigh your options before calling your plan administrator. 

You’ll lose potential tax deductions

You might qualify for traditional IRA tax deductions, depending on your income and existing retirement plans. In 2024, that’s a potential $7,000 deduction, so make sure you understand your eligibility before you forfeit the tax break with a rollover. 

Contributions to an employer-sponsored retirement plan may reduce or eliminate your eligibility for IRA deductions. That includes if you don’t have a 401(k) yourself, but your spouse does. 

The phase-out is based on your modified-adjusted gross income. If your income falls within the range, your deductions are reduced. If you exceed the range, you no longer qualify for IRA tax deductions. You can contribute after-tax funds to a nondeductible IRA, though.

IRAs have more investment options

An IRA typically has more investment options that allow you to build a custom portfolio. If you’re an experienced investor and want full control over your retirement investments, this is probably ideal. 

You can still pick your investments in a 401(k), but your options are often limited to funds  your employer has selected, which are often age or risk based. . 

Roth IRAs don’t rollover

If you have a Roth IRA, you’re not eligible to roll it over into a 401(k) – even if it’s also a Roth account. So, if you want to switch gears and focus on your 401(k) account, you’ll just have to make contributions to the 401(k) directly. 

Lost access to early withdrawals

A 401(k) permits loans, hardship withdrawals, and early access at 55, but IRAs also have exceptions for penalty-free early withdrawals that you’ll miss out on if you roll over the account. For example:

401(k)s don’t carry over job-to-job

If you move all of your IRA funds into your 401(k), you’ll have to roll over the balance again when you switch jobs – either to a new 401(k) or IRA. This is because a 401(k) is employed-provided, so it’s tied to your job and doesn’t carry over automatically when you leave. 

You can still access the account and collect earnings, but you can’t continue contributions. If the account is doing really well, you can also leave it be. But don’t forget about it. 

Affordable investment advice

It’s always a good idea to talk to a professional about your retirement, but IRAs might make personalized advice a little easier. You can only get a 401(k) from your employer, but you can open IRAs with robo-advisors to help you manage your investments. 

Robo-advisors are often more affordable than human advisors, but they can still offer solid advice based on your personal situation. So if you want a little more support without relying on a human pro, consider keeping your IRA or rolling it into a new account with a robo-advisor. 

The Playbook take: An IRA rollover works both ways

Depending on your current retirement goals and assets, you may want to consider an IRA to 401(k) rollover. This maneuver is known as a reverse rollover, since the more common move is rolling over a 401(k) to an IRA.   

A reverse rollover means you will lose access to some of the perks that come with an IRA, such as broad investment options, but may gain other benefits, such as the ability to delay RMDs or consolidate your retirement balances.

If you’re digging through your retirement accounts and trying to find the best strategy for you, try Playbook to prioritize your investments and explore available tax advantages you might have missed. 

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