After Tax 401(k) Contributions
Thanks in advance for any help you can give me. I have a married client that has $15,000 in Pre-1987 after tax 401(k) contributions and $59,223.46 in Post-1986 after tax 401(k) contributions. The total account value is $500,000+ and he is seperated from service. He also has an IRA that $65,000 that we believe is all pre-tax.
Is there any ability to directly roll the $15,000 on Pre-1987 after tax contributions directly to a Roth IRA and not subject himself to any of the “cream in the coffe rules”?
As for the $59,000+ in post 1986 after-tax contributions, I am understanding that he can not roll that to a Roth IRA without also including the $65,000 IRA (i.e. the cream in the coffee rule) in the calculation to determine cost basis? I assume he would also include the balance of the $400,000 in 401(k) money that he will be rolling into an IRA unless we waited until 2009 to do so?
My best
Permalink Submitted by Alan Spross on Thu, 2008-11-06 19:07
Although the IRS has not released more than basic advice about the new direct Roth conversions, the following is just my take on this.
The taxpayer should be able to do a direct rollover of the pre tax amount to a TIRA. Under the 2002 JCWAA, provisions call for dollars rolled over to be considered first the pre tax amount before any after tax amount is transferred.
Then, if the plan will offer an addtional direct rollover, the after tax balance, both pre and post 87, should be able to go to the Roth IRA with no tax due. The MAGI limit of 100,000 applies until 2010 even though the Roth conversion would be tax free.
The existing TIRA balance is irrelevant because the direct conversion does not go through a TIRA or use Form 8606. With this much in post tax money, it may be worthwhile to wait until Regs are issued if the plan is not ready to act per the above.
If there are any NUA shares in the account, then the situation gets more complex since you are juggling LSD requirements, income limits, plan direct transfer provisions, and allocation of post tax dollars.