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Posted by A.G. Kalman on January 16, 2007, 3:54 am
Please log in for more thread options 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?
The instructions for the 8606 tell you to use Line 2 to
account for the basis of a rollover of already taxed
contributions. You are correct that you have a choice when
it comes to your cost basis in your pension. Assuming the
plan allows it, you can walk away with the money that was
already taxed and just rollover the untaxed amount or you
can rollover the whole shebang and use the 8606 to establish
your cost basis in the IRA.
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