The Internal Revenue Service allows you to move money between your different retirement accounts through rollovers. If you've moved money from your 401(k) plan to a traditional IRA, the IRS won't stand in your way if you want to put it back in a 401(k). However, if you converted it from a 401(k) plan to a Roth IRA, you can't roll it over into another 401(k) plan, even a Roth 401(k).
Your 401(k) plan may, but isn't required by law, to accept rollovers from your IRA. Ask your 401(k) plan administrator whether your plan will accept rollovers before you take the distribution to make sure that the contribution will be accepted before you take the withdrawal. If your 401(k) plan doesn't accept the rollover, you'll have to put it into another qualified retirement account, which could be the same traditional IRA it came out of, before the deadline for completing the rollover.
Whether you're rolling money from your 401(k) plan to your IRA or your IRA to your 401(k) plan, you must complete the rollover within 60 days of receiving the distribution. If you don't, it will be treated as a permanent distribution unless you get a special extension of time to complete the rollover, which are only granted in extraordinary circumstances. Not only will the funds become taxable and, if you're under 59 1/2, subject to the 10 percent additional tax penalty, you also aren't allowed to complete the rollover in the future, so you lose the tax-sheltered growth offered by IRAs and 401(k)s.
Taxable Portion Only
You're not allowed to roll the nontaxable portion of your traditional IRA to a 401(k) plan. However, the tax code allows you to roll over just the taxable portion of the IRA if you have both taxable and nontaxable amounts in the account. For example, say your traditional IRA contains $5,000 of nondeductible contributions and its total value is $70,000. You could roll up to $65,000 from your IRA into your 401(k) with the last $5,000 of nondeductible contributions remaining in the IRA.
Maintaining Special Tax Treatment
Once you've rolled money from your 401(k) plan to an IRA, don't add money to that particular IRA if you're planning to roll it back into another 401(k) plan. If you do, you can still roll it into a 401(k), but the money will no longer qualify for any optional tax treatment when you eventually take distributions. For example, say you roll $100,000 from your 401(k) to your IRA. If you make a $1,000 annual contribution to that particular IRA, you can then roll the $101,000 back into a 401(k) plan, but it won't qualify for any special tax treatment.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."