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Subject Author Date
rollover treatment of 401k after-tax contribs Dick Watson 01-12-2007
Posted by Dick Watson on January 12, 2007, 7:12 am
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 I'm about to get traded to a new employer and will then be
able to rollover my existing 401(k) from the current
employer. That plan has a significant amount of after-tax
contributions.

I've done a lot of research and conclude I have two choices:

1) I can keep take the after tax contributions amount and
put it in a taxable account and not have further tax issues
associated with it. I cannot find anywhere in anything
IRS-like that says this is possible, but find other
references in google to suggest it is so.

2) I can rollover the taxable amount to an IRA and track it
as part of my after tax contributions to the IRA. As near as
I can tell, I would report after tax contribution on line 2
of form 8606 and add it to prior after tax contributions to
the IRA to track the after tax contributions basis in the
401(k). (So I interpret the third adjustment exception in
the instructions for the 2005 form 8606 line 2. There is no
2006 form/instructions yet.) The form line 2 title would not
hint that a rollover after tax 401(k) contribution goes
there.

Are my conclusions correct? Is there a source that says that
I can just walk with the after-tax contributions? Is form
8606, line 2, the correct place to put the 401k after tax
contribution amount if I roll it over?

Thanks for your thought!

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Posted by Benjamin Yazersky CPA on January 13, 2007, 2:12 am
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> I'm about to get traded to a new employer and will then be
> able to rollover my existing 401(k) from the current
> employer. That plan has a significant amount of after-tax
> contributions.
>
> I've done a lot of research and conclude I have two choices:
>
> 1) I can keep take the after tax contributions amount and
> put it in a taxable account and not have further tax issues
> associated with it. I cannot find anywhere in anything
> IRS-like that says this is possible, but find other
> references in google to suggest it is so.
>
> 2) I can rollover the taxable amount to an IRA and track it
> as part of my after tax contributions to the IRA. As near as
> I can tell, I would report after tax contribution on line 2
> of form 8606 and add it to prior after tax contributions to
> the IRA to track the after tax contributions basis in the
> 401(k). (So I interpret the third adjustment exception in
> the instructions for the 2005 form 8606 line 2. There is no
> 2006 form/instructions yet.) The form line 2 title would not
> hint that a rollover after tax 401(k) contribution goes
> there.
>
> Are my conclusions correct? Is there a source that says that
> I can just walk with the after-tax contributions? Is form
> 8606, line 2, the correct place to put the 401k after tax
> contribution amount if I roll it over?

many of these things have some dependency on the plan of the
employer you are departing from the first thing to do isto
read those plan documents & find out what you can & can't do
beyond that, some professional tax planning would be advised

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----

<< ======================================================= >>
<< 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 Dick Watson on January 15, 2007, 1:48 am
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> many of these things have some dependency on the plan of the
> employer you are departing from the first thing to do isto
> read those plan documents & find out what you can & can't do

I've read the SPD until my head hurts. It has all kinds of may and might and
can talk and not much must and shall and will talk.

> beyond that, some professional tax planning would be advised

No freebies here?

I mean it's two simple questions:

1) can I just walk with it? (My understanding from talking
to the plan provider is that in a rollover scenario their
normal procedure is to send two checks. One id the pre-tax
money and is made out to the IRA Company FBO Me and the
other is the after-tax contributions and is made out to me.)

2) If I roll it over, where do I report its addition to the
after tax basis of the IRA? Form 8606 line 2?

<< ======================================================= >>
<< 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 Taxxcpa on January 15, 2007, 2:26 am
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Dick Watson wrote:

> I'm about to get traded to a new employer and will then be
> able to rollover my existing 401(k) from the current
> employer. That plan has a significant amount of after-tax
> contributions.
>
> I've done a lot of research and conclude I have two choices:
>
> 1) I can keep take the after tax contributions amount and
> put it in a taxable account and not have further tax issues
> associated with it. I cannot find anywhere in anything
> IRS-like that says this is possible, but find other
> references in google to suggest it is so.
>
> 2) I can rollover the taxable amount to an IRA and track it
> as part of my after tax contributions to the IRA. As near as
> I can tell, I would report after tax contribution on line 2
> of form 8606 and add it to prior after tax contributions to
> the IRA to track the after tax contributions basis in the
> 401(k). (So I interpret the third adjustment exception in
> the instructions for the 2005 form 8606 line 2. There is no
> 2006 form/instructions yet.) The form line 2 title would not
> hint that a rollover after tax 401(k) contribution goes
> there.
>
> Are my conclusions correct? Is there a source that says that
> I can just walk with the after-tax contributions? Is form
> 8606, line 2, the correct place to put the 401k after tax
> contribution amount if I roll it over?
>
> Thanks for your thought!

You cannot roll over after-tax 401K money into a Rollover
IRA.

You can roll over the pre-tax money. In 2007 there you can
roll over money from one 'qualified' plan to another
'qualified' plan but not to a Rollover IRA. For more details
read my blog on this subject which will be published
tomorrow, Jan 14, at http://wwwtaxman.blogspot.com

<< ======================================================= >>
<< 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 Phil Marti on January 16, 2007, 3:54 am
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> You cannot roll over after-tax 401K money into a Rollover
> IRA.

Yes you can, for several years now. You then report the
after-tax portion on line 2 of Form 8606 for the year of the
rollover.

To OP: Yes you can take the after-tax contributions without
tax consequence. The 1099-R will show the nontaxable
portion. Confirmation of this should be in IRS Publication
575, but I haven't been able to find it after a brief look.

--
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. >>
<< ======================================================= >>

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