A Roth IRA cannot be transferred or rolled over to a Roth 401(k). That comes as a surprise to many Roth IRA owners who later establish or participate in a Roth 401(k) as Traditional IRAs can be rolled over to Traditional 401(k) accounts. However, because of some unfortunate quirks in the tax code, a Roth IRA can only be transferred or rolled over to another Roth IRA. The Department of Treasury issued regulations and clarifying questions on the issue in Treas. Reg. 1.408A-10, Q&5, where they stated the following.

Can amounts distributed from a Roth IRA be rolled over to a designated Roth account as defined in A-1 of §1.402A-1?

A-5. No. Amounts distributed from a Roth IRA may be rolled over or transferred only to another Roth IRA and are not permitted to be rolled over to a designated Roth account under a section 401(a) or section 403(b) plan.

The same rule applies even if all the amounts in the Roth IRA are attributable to a rollover distribution from a designated Roth account in a plan.

So, if your funds are in a Roth IRA they can only be transferred or rolled over to another Roth IRA. On the other hand, if you have funds in a Roth 401(k), those funds can be rolled or transferred out to a Roth IRA but once they are in a Roth IRA they cannot go back to a Roth 401(k). In short, just remember, that once funds are in a Roth IRA they are stuck as a Roth IRA and cannot be rolled over and transferred into any other account. While I believe the rule restricting Roth IRA to Roth 401(k) transfers/rollovers will change over time I don’t see it happening any time soon. In fact, at a recent conference in Washington, D.C., I asked a top ranking treasury official about the issue and he stated that they wanted it fixed and that they were working on it. In other words, we have more important stuff to do right now (or to not do, however you view the workings in D.C.).

By: Mat Sorensen, Attorney and Author of The Self Directed IRA Handbook

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