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Rollover of 401K with after-tax money

 
 
Jim
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      06-09-2009, 04:47 PM
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

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<< ------------------------------------------------------- >>
<< 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. >>
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Arthur Kamlet
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      06-09-2009, 04:59 PM
In article <(E-Mail Removed)>,
Jim <(E-Mail Removed)> 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.
--

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. >>
<< ------------------------------------------------------- >>
 
Reply With Quote
 
 
 
 
Avrum Lapin
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      06-09-2009, 07:21 PM
In article <h0m4ct$1ml$(E-Mail Removed)>,
(E-Mail Removed) (Arthur Kamlet) wrote:

> In article
> <(E-Mail Removed)>,
> Jim <(E-Mail Removed)> 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.
> --
>
> 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. >>
<< ------------------------------------------------------- >>
 
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Alan
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      06-09-2009, 07:36 PM
Arthur Kamlet wrote:
> In article <(E-Mail Removed)>,
> Jim <(E-Mail Removed)> 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. >>
<< ------------------------------------------------------- >>
 
Reply With Quote
 
Jim
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Posts: n/a
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      06-09-2009, 08:41 PM
On Jun 9, 12:59*pm, (E-Mail Removed) (Arthur Kamlet) wrote:
> In article <(E-Mail Removed)>,
>
>
>
> Jim *<(E-Mail Removed)> 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.
> --
>
> ArtKamlet *at *a o l dot c o m *Columbus OH *K2PZH


That was what I thought originally but then I ran across this thread
in another forum:

http://www.irahelp.com/forum/viewtopic.php?area=&t=2608

It seems to imply that the rules changed in 2008.

--
<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>
 
Reply With Quote
 
Jim
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Thanked:
 
      06-09-2009, 08:42 PM
On Jun 9, 3:36*pm, Alan <(E-Mail Removed)> wrote:
> Arthur Kamlet wrote:
> > In article <(E-Mail Removed)>,
> > Jim *<(E-Mail Removed)> 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.


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. >>
<< ------------------------------------------------------- >>
 
Reply With Quote
 
Alan
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Posts: n/a
Thanked:
 
      06-10-2009, 04:09 AM
Jim wrote:
> On Jun 9, 3:36 pm, Alan <(E-Mail Removed)> wrote:
>> Arthur Kamlet wrote:
>>> In article <(E-Mail Removed)>,
>>> Jim <(E-Mail Removed)> 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.

>
> 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.

--
<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>
 
Reply With Quote
 
 
 
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