Last week, I wrote about rolling over your 401(k) into an IRA. Shortly thereafter, a reader named Nelly wrote in to ask about the possibility of doing the opposite — rolling an IRA into a 401(k). Here’s her question:
I have a small traditional IRA that I’m tired of dealing with. I’m no longer contributing to it, and would like to roll it into my 401(k) so I won’t have to keep track of two accounts. Can I do this?
The short answer is that yes, you can roll the funds from a traditional IRA into a 401(k) as long as the 401(k) plan allows it. The same goes for doing a rollover into a 403(b). The slightly longer answer is that you can only roll over tax deductible contributions and earnings.
Thus, if you’ve also made non-deductible contributions to your IRA you won’t be able to move the full amount. Rather, you’ll have to subtract out your “basis” when determining how much money you can move. It’s also worth noting that inherited IRAs cannot be rolled over in this fashion.
Another important question is whether or not you should execute a rollover of this sort. While it might be convenient to consolidate your accounts, you should look carefully at the investment options and fees in the 401(k) plan before executing the rollover. If your 401(k) options aren’t great, you might be better off keeping the IRA.
Another minor consideration is that you can withdraw funds from your IRA whenever you want. While withdrawing funds from an IRA isn’t typically a good idea, there are circumstances in which doing so is the lesser of two evils. You’ll have to pay taxes and penalties, but you can access IRA funds early. In contrast, you’ll have to meet specific hardship guidelines before you can touch the money in your 401(k).