Post Tax IRA Rules for withdrawal.
I have a client with both a pre-tax and post-tax IRA in one account and no longer funding it because her 401(k) is a better choice. Is it best to separate the funds into pre and post tax accounts? When she has to take her RMD, can we take the RMD from just the post tax IRA to meet the minimum and hold down the tax burden?
Permalink Submitted by Alan Spross on Mon, 2008-06-30 20:02
There is no reason to separate these accounts since for tax purposes they would only be re combined again. All IRA accounts are considered as one combined account, and if they were actually separate, the tax impact of taking a distribution from either would be the same.
So she should just keep them as is, and her RMD would be partially tax free based on her basis on Form 8606. An 8606 will be needed every year once RMDs begin.
There is one way your goal can be accomplished, however. If the 401k will accept IRA rollovers, she could roll the pre tax amount only into the 401k. If she works past 70.5, her RMDs would likely not be required until after separation. Her IRA RMD would start a 70.5, but would be mostly composed of after tax amounts, since they CANNOT be rolled to the 401k. The problem is that many plans will not accept IRA rollover of non rollover IRA accounts, since they fear getting after tax dollars into their plan. But it may be worth checking into.