Permalink Submitted by Kristin Kippen on Thu, 2008-01-31 00:10
Yes, however, he probably won’t want to. Say he has after-tax contributions of $40,000 that he rolls into a $200,000 IRA. Once he rolls it into the IRA he loses the right to access that money tax-free. If he wants to take a $40,000 distribution, he would need to calculate what portion of the distribution is tax-free and what portion is fully taxable $40,000/$200,000. Is he eligible to contribute to a Roth IRA? It may be better for him to roll the after-tax portion to a non-qualified account and then use that money to fund Roth IRA contributions each year until the after-tax portion is depleted. That way he has access to the money if needed, and it could eventually be in a tax-deferred/tax-free retirement plan. Or if not use it for Roth, just have it in a non-qualified account where he could access it tax-free all at once if needed.
Permalink Submitted by Alan Spross on Thu, 2008-01-31 05:41
Client may also be advised to wait for the IRS Regs with respect to the direct Roth rollover that just became available 1/1/08. Until the IRS issues the Regs, it won’t be possible to process these, but basically it seems likely that the after tax amounts will be able to go directly to a Roth IRA and the pre tax to a TIRA. The 100,000 MAGI limits continue to apply until 2010. Also, unless client has pre 1987 after tax contributions in the plan, the distribution of the entire account may have to be made simultaneously.
I would think these Regs should be out within a couple months …
unless they’ve got everyone down there processing rebate checks 🙂
Permalink Submitted by Kristin Kippen on Thu, 2008-01-31 00:10
Yes, however, he probably won’t want to. Say he has after-tax contributions of $40,000 that he rolls into a $200,000 IRA. Once he rolls it into the IRA he loses the right to access that money tax-free. If he wants to take a $40,000 distribution, he would need to calculate what portion of the distribution is tax-free and what portion is fully taxable $40,000/$200,000. Is he eligible to contribute to a Roth IRA? It may be better for him to roll the after-tax portion to a non-qualified account and then use that money to fund Roth IRA contributions each year until the after-tax portion is depleted. That way he has access to the money if needed, and it could eventually be in a tax-deferred/tax-free retirement plan. Or if not use it for Roth, just have it in a non-qualified account where he could access it tax-free all at once if needed.
Permalink Submitted by Alan Spross on Thu, 2008-01-31 05:41
Client may also be advised to wait for the IRS Regs with respect to the direct Roth rollover that just became available 1/1/08. Until the IRS issues the Regs, it won’t be possible to process these, but basically it seems likely that the after tax amounts will be able to go directly to a Roth IRA and the pre tax to a TIRA. The 100,000 MAGI limits continue to apply until 2010. Also, unless client has pre 1987 after tax contributions in the plan, the distribution of the entire account may have to be made simultaneously.
I would think these Regs should be out within a couple months …
unless they’ve got everyone down there processing rebate checks 🙂