Rollover of 401K with after-tax money

Discussion in 'Tax' started by Jim, Jun 9, 2009.

  1. Jim

    Jim Guest

    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

    --
    << ------------------------------------------------------- >>
    << 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. >>
    << ------------------------------------------------------- >>
     
    Jim, Jun 9, 2009
    #1
    1. Advertisements

  2. In article <>,
    Jim <> 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. >>
    << ------------------------------------------------------- >>
     
    Arthur Kamlet, Jun 9, 2009
    #2
    1. Advertisements

  3. Jim

    Avrum Lapin Guest

    In article <h0m4ct$1ml$>,
    (Arthur Kamlet) wrote:

    > In article
    > <>,
    > Jim <> 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. >>
    << ------------------------------------------------------- >>
     
    Avrum Lapin, Jun 9, 2009
    #3
  4. Jim

    Alan Guest

    Arthur Kamlet wrote:
    > In article <>,
    > Jim <> 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. >>
    << ------------------------------------------------------- >>
     
    Alan, Jun 9, 2009
    #4
  5. Jim

    Jim Guest

    On Jun 9, 12:59 pm, (Arthur Kamlet) wrote:
    > In article <>,
    >
    >
    >
    > Jim  <> 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. >>
    << ------------------------------------------------------- >>
     
    Jim, Jun 9, 2009
    #5
  6. Jim

    Jim Guest

    On Jun 9, 3:36 pm, Alan <> wrote:
    > Arthur Kamlet wrote:
    > > In article <>,
    > > Jim  <> 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. >>
    << ------------------------------------------------------- >>
     
    Jim, Jun 9, 2009
    #6
  7. Jim

    Alan Guest

    Jim wrote:
    > On Jun 9, 3:36 pm, Alan <> wrote:
    >> Arthur Kamlet wrote:
    >>> In article <>,
    >>> Jim <> 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. >>
    << ------------------------------------------------------- >>
     
    Alan, Jun 10, 2009
    #7
    1. Advertisements

Want to reply to this thread or ask your own question?

It takes just 2 minutes to sign up (and it's free!). Just click the sign up button to choose a username and then you can ask your own questions on the forum.
Similar Threads
  1. Lemurosity

    401k after-tax rollover question

    Lemurosity, Feb 15, 2006, in forum: Tax
    Replies:
    1
    Views:
    359
    A.G. Kalman
    Feb 15, 2006
  2. Dick Watson
    Replies:
    11
    Views:
    678
    Drew Edmundson
    Jan 19, 2007
  3. taxxcpa
    Replies:
    4
    Views:
    563
    A.G. Kalman
    Jan 24, 2007
  4. Dick Watson

    rollover of 401k after-tax contribs: trade-off?

    Dick Watson, Jan 12, 2007, in forum: Financial Planning
    Replies:
    7
    Views:
    521
    HW \Skip\ Weldon
    Jan 13, 2007
  5. gmcenroe

    401k rollover into 401k or IRA question

    gmcenroe, Jan 12, 2007, in forum: Financial Planning
    Replies:
    2
    Views:
    399
    Todd H.
    Jan 12, 2007
Loading...

Share This Page