Rollover of 401K with after-tax money

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Subject Author Date Rollover of 401K with after-tax money Jim 06-09-2009  Re: Rollover of 401K with after-tax money Arthur Kamlet 06-09-2009  Re: Rollover of 401K with after-tax money Avrum Lapin 06-09-2009  Re: Rollover of 401K with after-tax money Alan 06-09-2009  Re: Rollover of 401K with after-tax money Jim 06-09-2009  Re: Rollover of 401K with after-tax money Alan 06-10-2009  Re: Rollover of 401K with after-tax money Jim 06-09-2009
Posted by Jim on June 9, 2009, 12:47 pm Please log in for more thread options I have a 401K at a former employer that contains a substantial amount of after-tax contributions. I have received some input that I can roll this over in two parts to, in effect, put the pre-tax money (contributions + all earnings) into a TIRA and the after-tax contributions in to a ROTH IRA. The advice I was given said that to do this, it would be necessary to do the rollover in two parts and the sequence was important. First, do a partial rollover of an amount equal to the pre-tax funds to a TIRA. Second, roll the remainder to a ROTH IRA. According to one IRS publication (and input from one source), if a partial rollover is done, the IRS deems the money to come from pre-tax sources first. Thus, the first partial rollover deems the remainder of the funds as after-tax funds. These are then subsequently rolled to the ROTH in a separate rollover transaction. I am interested in any opinions as to whether the above is a valid way to direct only the after-tax part to a ROTH and leave the pre-tax part in a TIRA (and continue to defer taxes). Thanks -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Arthur Kamlet on June 9, 2009, 12:59 pm Please log in for more thread options >I have a 401K at a former employer that contains a substantial amount >of after-tax contributions. > >I have received some input that I can roll this over in two parts to, >in effect, put the pre-tax money (contributions + all earnings) into a >TIRA and the after-tax contributions in to a ROTH IRA. The advice I >was given said that to do this, it would be necessary to do the >rollover in two parts and the sequence was important. > >First, do a partial rollover of an amount equal to the pre-tax funds >to a TIRA. > >Second, roll the remainder to a ROTH IRA. > >According to one IRS publication (and input from one source), if a >partial rollover is done, the IRS deems the money to come from pre-tax >sources first. Thus, the first partial rollover deems the remainder >of the funds as after-tax funds. These are then subsequently rolled >to the ROTH in a separate rollover transaction. > >I am interested in any opinions as to whether the above is a valid way >to direct only the after-tax part to a ROTH and leave the pre-tax part >in a TIRA (and continue to defer taxes). Pre-1987 after-tax contributions are allowed to be removed separate from other moneys in the plan. The plan manager would have to be keeping track of the pre-1987 after-tax moneys and also must be willing to do this for you. Post-1986 after-tax moneys are distributed pro-rata and not separate from pre-tax moneys. -- ArtKamlet at a o l dot c o m Columbus OH K2PZH -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Avrum Lapin on June 9, 2009, 3:21 pm Please log in for more thread options kamlet@panix.com (Arthur Kamlet) wrote: > In article > >I have a 401K at a former employer that contains a substantial amount > >of after-tax contributions. > > > >I have received some input that I can roll this over in two parts to, > >in effect, put the pre-tax money (contributions + all earnings) into a > >TIRA and the after-tax contributions in to a ROTH IRA. The advice I > >was given said that to do this, it would be necessary to do the > >rollover in two parts and the sequence was important. > > > >First, do a partial rollover of an amount equal to the pre-tax funds > >to a TIRA. > > > >Second, roll the remainder to a ROTH IRA. > > > >According to one IRS publication (and input from one source), if a > >partial rollover is done, the IRS deems the money to come from pre-tax > >sources first. Thus, the first partial rollover deems the remainder > >of the funds as after-tax funds. These are then subsequently rolled > >to the ROTH in a separate rollover transaction. > > > >I am interested in any opinions as to whether the above is a valid way > >to direct only the after-tax part to a ROTH and leave the pre-tax part > >in a TIRA (and continue to defer taxes). > > > Pre-1987 after-tax contributions are allowed to be removed separate from > other moneys in the plan. The plan manager would have to be keeping track > of the pre-1987 after-tax moneys and also must be willing to do this for > you. > > > Post-1986 after-tax moneys are distributed pro-rata and not separate from > pre-tax moneys. > -- > > ArtKamlet at a o l dot c o m Columbus OH K2PZH You must remove the after tax money first and as a separate transaction. Whether this money can go into a Roth may depend on when you put the after tax money into the 401k. Then you have the rest rolled into an IRA. If the after tax money in rolled into an IRA then withdrawal depends on the rules associated with Form 8606. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Alan on June 9, 2009, 3:36 pm Please log in for more thread options Arthur Kamlet wrote: >> I have a 401K at a former employer that contains a substantial amount >> of after-tax contributions. >> >> I have received some input that I can roll this over in two parts to, >> in effect, put the pre-tax money (contributions + all earnings) into a >> TIRA and the after-tax contributions in to a ROTH IRA. The advice I >> was given said that to do this, it would be necessary to do the >> rollover in two parts and the sequence was important. >> >> First, do a partial rollover of an amount equal to the pre-tax funds >> to a TIRA. >> >> Second, roll the remainder to a ROTH IRA. >> >> According to one IRS publication (and input from one source), if a >> partial rollover is done, the IRS deems the money to come from pre-tax >> sources first. Thus, the first partial rollover deems the remainder >> of the funds as after-tax funds. These are then subsequently rolled >> to the ROTH in a separate rollover transaction. >> >> I am interested in any opinions as to whether the above is a valid way >> to direct only the after-tax part to a ROTH and leave the pre-tax part >> in a TIRA (and continue to defer taxes). > > > Pre-1987 after-tax contributions are allowed to be removed separate from > other moneys in the plan. The plan manager would have to be keeping track > of the pre-1987 after-tax moneys and also must be willing to do this for > you. > > > Post-1986 after-tax moneys are distributed pro-rata and not separate from > pre-tax moneys. There is no pre-1987 requirement on eligible rollovers. I haven't looked, but I think Art may be thinking about some Sec. 457 rule. If you have both pre and post-tax components in a qualified plan, the first part of any rollover is deemed to come from pre-tax contributions (the taxable part). So, if your 401K allows for it, you would rollover the amount in the 401K that is taxable to a TIRA and the remainder, which now consists of an amount equal to your post-tax contributions, should be rolled over directly (trustee to trustee) to a Roth IRA. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Jim on June 9, 2009, 4:42 pm Please log in for more thread options > Arthur Kamlet wrote: > > In article > >> I have a 401K at a former employer that contains a substantial amount > >> of after-tax contributions. > > >> I have received some input that I can roll this over in two parts to, > >> in effect, put the pre-tax money (contributions + all earnings) into a > >> TIRA and the after-tax contributions in to a ROTH IRA.  The advice I > >> was given said that to do this, it would be necessary to do the > >> rollover in two parts and the sequence was important. > > >> First, do a partial rollover of an amount equal to the pre-tax funds > >> to a TIRA. > > >> Second, roll the remainder to a ROTH IRA. > > >> According to one IRS publication (and input from one source), if a > >> partial rollover is done, the IRS deems the money to come from pre-tax > >> sources first.  Thus, the first partial rollover deems the remainder > >> of the funds as after-tax funds.  These are then subsequently rolled > >> to the ROTH in a separate rollover transaction. > > >> I am interested in any opinions as to whether the above is a valid way > >> to direct only the after-tax part to a ROTH and leave the pre-tax part > >> in a TIRA (and continue to defer taxes). > > > Pre-1987 after-tax contributions are allowed to be removed separate from > > other moneys in the plan.  The plan manager would have to be keeping track > > of the pre-1987 after-tax moneys and also must be willing to do this for > > you. > > > Post-1986 after-tax moneys are distributed pro-rata and not separate from > > pre-tax moneys. > > There is no pre-1987 requirement on eligible rollovers. I haven't > looked, but I think Art may be thinking about some Sec. 457 rule. > > If you have both pre and post-tax components in a qualified plan, > the first part of any rollover is deemed to come from pre-tax > contributions (the taxable part). So, if your 401K allows for it, > you would rollover the amount in the 401K that is taxable to a > TIRA and the remainder, which now consists of an amount equal to > your post-tax contributions, should be rolled over directly > (trustee to trustee) to a Roth IRA. Alan, this is what I understood as well but I have not seen any type of official opinion. Do you know if there is such a thing? Would each of the 1099s have the same distribution code (I think G is the code for a rollover)? -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Rollover of After-Tax money from a 401K to an IRA January 21, 2007, 4:37 pm Rollover of 401k February 10, 2008, 11:58 pm 401k rollover - taxable in NJ February 25, 2007, 12:01 am rollover treatment of 401k after-tax contribs January 12, 2007, 7:12 am 401K Withdrawal rollover tax liability April 25, 2007, 3:58 am non-spouse beneficiary 401k rollover to inherited IRA February 10, 2007, 6:43 am 401k, ira, first home purchase - rollover questions April 28, 2007, 4:25 pm Rollover of 401K From American Company Involving a Foreign National March 3, 2008, 4:43 pm Rollover of Roth 401k into Roth IRA February 11, 2008, 2:17 pm Solo 401K (aka Individual 401K) same as Super-Simplified 401K? 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