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Posted by Alan on June 10, 2009, 12:09 am
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Jim wrote:
>> 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)?
>
Section 643 of EGTRRA 2001 created the rollover of after-tax
amounts effective 2002. If you look at IRS Pub 575 prior to 2002,
there is no mention of rolling over the after-tax contributions.
It first shows up in the 2002 Pub 575.
As such, I see no reason why the plan administrator should not be
able to properly code the 1099-Rs to reflect a tax-free rollover
for the part going to the TIRA and for the part going to the Roth
IRA as long as you provide the proper instructions.
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