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Rollover of After-Tax money from a 401K to an IRA taxxcpa 01-21-2007
Posted by taxxcpa on January 21, 2007, 4:37 pm
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 You cannot rollover after-tax money from a 401K to an IRA.

An IRA is not the same thing as a Qualified Plan. A
qualified plan is established by an employer to provide
retirement benefits for employees and their beneficiaries.
Unlike SEP and SIMPLE IRAs. A qualified plan is not IRA
based nor subject to the same rules concerning contributions
and distributions.

A business may chose either a Qualified OR an IRA-based
plan, but an IRA and a Qualified Plan are not the same
thing, and some of the rules affecting them are different..

What's a rollover?
Rollover means to move money from a qualified retirement
plan such as a 401(k), 403b or 457 Planinto an IRA. If you
receive a payout from your company-sponsored retirement
plan, a rollover IRA could be to your advantage. You will
continue to receive the tax-deferred status of your
retirement savings and will avoid penalties and taxes.

After December 31, 2006 you can roll over both pre-tax and
after-tax contributions from one qualified plan to another
qualified plan. The rollover from one qualified plan to
another must be a direct rollover and the receiving plan
must separately account for the after-tax contributions and
earnings.

But keep in mind: an IRA is not a Qualified Plan so you
cannot roll over after-tax money from a 401K or other
qualified plan into a Rollover 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 >>
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Posted by Phil Marti on January 22, 2007, 4:00 am
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> You cannot rollover after-tax money from a 401K to an IRA.

No matter how many times you repeat this, it remains flat
out wrong. The law changed (I think effective 2005), as
witnessed by the reporting instructions for such a rollover
in the Form 8606 instructions.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Ernie Klein on January 23, 2007, 2:23 am
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>> You cannot rollover after-tax money from a 401K to an IRA.

> No matter how many times you repeat this, it remains flat
> out wrong. The law changed (I think effective 2005), as
> witnessed by the reporting instructions for such a rollover
> in the Form 8606 instructions.

This is a very timely post. I was just starting to research
how to report my 401K rollover to an IRA on March of 2006.
My employer sent two separate payments to the IRA custodian,
one for before tax and one for after tax.

One poster said to use lines 15a and 15b and write
'ROLLOVER' next to it, and you say to use form 8606. IRS
PUB 590 seems to support the first method, but it seems to
be out of date because it refers to lines 16a and b. So I
am not sure which is the correct way.

Also don't I have to keep track of all of my after tax
contributions so that they can be prorated into future
distributions? I am now sure just where and how to report
and track that.

--
-Ernie-

<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by A.G. Kalman on January 24, 2007, 2:15 am
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Ernie Klein wrote:

>>> You cannot rollover after-tax money from a 401K to an IRA.

>> No matter how many times you repeat this, it remains flat
>> out wrong. The law changed (I think effective 2005), as
>> witnessed by the reporting instructions for such a rollover
>> in the Form 8606 instructions.

> This is a very timely post. I was just starting to research
> how to report my 401K rollover to an IRA on March of 2006.
> My employer sent two separate payments to the IRA custodian,
> one for before tax and one for after tax.
>
> One poster said to use lines 15a and 15b and write
> 'ROLLOVER' next to it, and you say to use form 8606. IRS
> PUB 590 seems to support the first method, but it seems to
> be out of date because it refers to lines 16a and b. So I
> am not sure which is the correct way.
>
> Also don't I have to keep track of all of my after tax
> contributions so that they can be prorated into future
> distributions? I am now sure just where and how to report
> and track that.

Two separate actions: 1. You report the gross distribution
on your tax return as pension income. You report the taxable
amount of pension income as zero. You write the word
Rollover on the pension line. 2. If you never want to pay
tax again on the after-tax rollover you complete Part I of
the Form 8606 using Line 2 to enter your cost basis. Keep a
copy of the 8606 as that is your cost basis.

You will never have to file another 8606 that changes the
cost basis unless you either make a nondeductible IRA
contribution, you once again rollover after-tax pension
funds or convert all or part to a Roth IRA.

--
Alan
http://taxtopics.net

<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by A.G. Kalman on January 22, 2007, 4:00 am
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taxxcpa wrote:

> You cannot rollover after-tax money from a 401K to an IRA.

See Public Law 107-16 Sec. 643. It changed tax law to allow
for the after-tax contributions to be rolled over.

--
Alan
http://taxtopics.net

<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>

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