After Tax 401(k) distribution directly to Roth IRA
We initiated a rollover from a clients 401k to an IRA. The custodian of the 401k makes the checks payable to the new custodian fbo the client and sends them to the clients address. The client received a large check and a smaller 5 digit check specifying that this portion represents the after tax contributions. I am aware of the issues of commingling after tax monies in a TIRA. Can we simply send the aftertax contribution to the custodian for deposit into a Roth IRA?
Other option is to deposit this into the traditional IRA and immediately do a roth conversion?
Permalink Submitted by Alan Spross on Tue, 2008-10-14 21:31
Client should be able to roll over the after tax amount to a Roth IRA. See Q&A 1 with respect to Sec 824 of the PPA in attached link to Notice 2008-30. Note that the 100,000 MAGI limit applies through 2009.
http://www.irs.gov/pub/irs-drop/n-08-30.pdf
Being able to circumvent the TIRA results in the after tax amounts being fully deployed to the Roth with no current tax bill, and no 8606 using pro rate factors.