After Tax Rollovers

Submitted by Bradley Bofford on Tue, 2009-12-08 20:14

If I have a client with $630k in a 401k, of which $64k if after tax dollars, what is the recommended protocal. Does the client deposit the $64k into an IRA rollover and then we convert to a Roth in 2010? Or can we deposit directly into a Roth IRA?



Submitted by Alan Spross on Tue, 2009-12-08 21:13

Client cannot do this with a direct Roth conversion because of pro rating of basis concerns, however it can be done using an indirect rollover procedure. The American Benefits Council has appealed the different treatment of direct rollovers vrs indirect rollover to the IRS in attached letter:

http://www.americanbenefitscouncil.org/documents/402f_notice_abc-cmnts_1…

Pending IRS resolution, the client can do this by indirect rollover, however he would need $113,200 in cash to front the 20% mandatory withholding the plan will retain on the pre tax amount. Client would request a distribution, and first roll the pre tax amount to a TIRA and secondly the remaining 64k to a Roth IRA. The 113,200 would be needed to complete each of these rollovers. The withholding would be recovered after filing the tax return.

The indirect rollover works because there is a specific clause in Sec 402(c) that indicates that an employee receiving a distribution is first deemed to roll over the pre tax amount. So the order of the rollovers is critical.



Submitted by Bradley Bofford on Tue, 2009-12-08 23:56

I’m not exactly following why you are suggesting the client will need $113,200 in cash to complete the rollovers?



Submitted by Alan Spross on Wed, 2009-12-09 00:20

For a distribution to the employee (not a direct rollover), the plan must withhold 20% of the pre tax amount. The pre tax amount here is 630k less 64k = 566k. 20% of 566k is 113,200. That 113,200 goes to the IRS so the employee does not receive it, however the gross distribution from the plan is still the full 630k. So the employee must put in 113,200 of his own money to complete the rollover of the full amount. If done this month, and if employee files his taxes in Feb, 2010, he should have the money back by early March. This is the only safe way to split the full after tax amount off and direct it to the Roth IRA.

If client does a direct rollover of the full amount to a TIRA and then converts from there, the tax free portion of any conversion will be pro rated based on Form 8606 and the total year end value of all TIRA accounts. If client has no other IRAs but this rollover, then his basis for TIRA accounts would be a fraction over 10%. Nearly 90% of his conversion would be taxable regardless of the dollar amount of the conversion. In other words, he cannot get the full 64k of after tax funds into his Roth unless he converts the entire 630k. And that would generate a massive tax bill, and would not be a good idea.

If the client converts directly from the employer plan, all other IRA accounts are ignored and Form 8606 does not apply.

If employer did a direct rollover of 566k to a TIRA and cut a check for the 64 to the client, the client could convert it tax free IF the employer agrees to show NO TAXABLE amount on the 1099R for the after tax amount. But in the meantime the IRS might issue Inst to employers that they must pro rate the basis over both distributions, so this approach has some risk to it.

I know this situation should not be so complex, but the IRS has left this matter hanging, and plans are going to have to know how to issue their 1099R forms starting next month.



Submitted by Bradley Bofford on Wed, 2009-12-09 15:02

I appreciate your response, but I think there may be some miscommunication from my initial posting.

The client has $630k of which $64k is aftertax. We are only interested in rolling the after-tax to a Roth IRA. The remaining balance of $566k is to be rolled over to an IRA.

Therefore, of the $64k after-tax the client will receive a check from the plan trustee. Can we roll it directly to a Roth IRA conversion account, or do we need to roll it to an IRA and then do a Roth IRA conversion?

Brad Bofford
973-582-1002



Submitted by Alan Spross on Wed, 2009-12-09 17:19

I think this was covered in my final two paragraphs.

Client can convert directly or first roll the check to their TIRA and then convert from there. But this second option would be very costly because once combined with all their other TIRA assets (if any) plus the 566,000 pre tax amount, the conversion will be mostly taxable under the pro rate rules used on Form 8606.

Therefore, they should roll this directly to the Roth IRA (after 2009 there is no income limits), and the entire 64k is converted tax free. The concern is how the 1099R will be issued by the plan with respect to the direct rollover and the remaining after tax distribution. For this to work, the distribution paid to the client of 64k must show -0- in the taxable income box on the 1099R. This should be reviewed before hand with the plan administrator, because a 2010 1099R will not be out until 2011.

The potential problem is that the plan will show the after tax amount split between the direct rollover and the distribution on a pro rated basis. The IRS has not clarified how to handle these yet. So the choice is to wait until the IRS clears this up, or at least get the commitment from the plan that the second distribution will show NO taxable income included.

Again, the after tax amount should NOT be placed in a traditional IRA, or they will get a big tax bill when they convert from there.



Submitted by Bradley Bofford on Wed, 2009-12-09 18:05

Thats very helpful! Thank you.



Submitted by Bradley Bofford on Wed, 2009-12-09 18:39

One more question to clarify your response, if you dont mind.

When you say the rollover should be direct to a Roth IRA, what if the plan sponsor only makes after-tax distributions payable to the plan participant, not a trustee? Does the client have 60 days to deposit it into a Roth IRA?



Submitted by Alan Spross on Wed, 2009-12-09 19:39

Yes. By “direct” in that sense I meant avoiding rolling to a TIRA prior to rolling to a Roth IRA. An indirect rollover is fully acceptable in funding the Roth and the Roth custodian should be told the contribution is a conversion and rollover from an employer plan. There should be no withholding on this distribution if the plan considers these funds fully after tax, and if they don’t consider them fully after tax, there is a problem. The direct rollover of the pre tax funds to the TIRA should be done first.



Submitted by Edward Czapor on Wed, 2009-12-09 20:52

Alan,
Just to confirm, if the entire after tax amount were from pre-87 contributions, then the pro rate rule would not apply.
The after tax could go to a Roth and the pre tax amount to a TIRA with direct rollovers. Alternatively, the after tax could be distributed and rolled inderectly to a Roth within 60 days. The 1099-R would show zero taxable. The pre tax amount could still be rolled directly to a TIRA. If both amounts were distributed (20% witholding on the pre tax amount), then both rollovers could be accomplished within 60 days without regard to which came first. Is this correct ?

Ed C.



Submitted by Alan Spross on Wed, 2009-12-09 21:33

Ed,
That’s right, any pre 1987 after tax contributions separately accounted for and usually shown on plan statements is NOT subject to the pro rate rules and can be distributed separately. Eligible employees should convert these dollars first, either directly or by indirect rollover if the plan limits the number of direct rollovers they will do.

The problem here is that almost all employees that have pre 87 after tax contributions also have later after tax contributions, and these later ones are the source of the challenge how to convert them without converting pre tax money subject to pro rate rules. One sure solution is to do this by indirect rollover, but then you must have the money to front the 20% withholding on the pre tax amount. It does not matter which rollover OUT of the plan is done first, but the indirect rollover done by the employee must be first completed for the TIRA for the pre tax dollars and last the after tax dollars go to the Roth IRA. The rule in Sec 402(c) that specifies that the first dollars rolled over by an employee (former employee) are the pre tax dollars applies to equally to the pre 87 and post 86 after tax dollars. In other words, if the employee does NOT complete the pre 87 conversion first and is holding a mixture of pre tax and after tax dollars both pre 87 and post 86, the employee should roll over the pre tax dollars before ANY of the after tax dollars.

I am still hoping for an IRS Notice that identifies a clear way to convert after tax dollars by direct conversions and avoid the pro rate rules. Having to do an indirect rollover works but too few employees have enough cash to front the 20% withholding on large distributions. Not to mention that plan administrators need to know how to handle the 1099R forms correctly. The 402f notice is being updated, but still does not clarify this one situation. The IRS seems slow to recognize that entire 401k accounts are not going to be rolled to EITHER a TIRA or a Roth IRA, but most employees will want to split them if they after tax dollars.



Submitted by Thierry Turc on Sat, 2009-12-12 11:18

My 401(K) plan at my last company has a total balance of $380,000, which includes $180,000 in after-tax contributions. That company has filed for bankruptcy earlier this year and will close the plan mid-December, so I need to give instructions to the plan administrator before then re: what I want to do with my 401(K) balance.

My initial strategy was the following:
– Pre-tax 401(K) amount ($200,000): Do a direct rollover into a Traditional IRA (TIRA).
After 2009 I may convert all or part of the TIRA to a Roth (I can not do it this year as my 2009 income is above the $100,000 limit for a Roth conversion).
– Post-tax 401(K) amount ($180,000): Put that money into a Roth in 2010.
Ask the plan administrator before mid-December for a check made payable to the financial institution where I am planning to have my Roth account, hold onto the check until after January 1, 2010 (but not more than 60 days) and then send it to that financial institution to fund my Roth.

Based on previous posts, I understand that the approach above would actually not work in separating pre-tax and post-tax amounts, and I would end-up with pre-tax and post-tax dollars in both the TIRA and the Roth in a prorated fashion, based on the ratio of 401(K) after-tax contributions ($180,000) to the whole 401(K) balance ($380,000), that is a bit less than 50%. Consequently, I would have to pay taxes on more than $90,000 of pre-tax dollars in the Roth in 2010.

Instead, I need to use an indirect rollover approach. Before mid-December I will ask the plan administrator for a check for the whole 401(K) balance. I understand they will withhold 20% ($40,000) of the pre-tax amount, so the check will be for $340,000. Within 60 days I will then do the following:
– First, make a deposit into a TIRA equal to the pre-tax amount ($200,000).
– Second, come up with $40,000 from other assets and make a deposit into a Roth equal to the post-tax amount ($180,000) in 2010.
These two rollovers will be tax-free and the $40,000 withholding will be refunded to me by the IRS in 2010.

My questions are:
– Am I correct in saying that my initial approach above would not work as intended?
– Will the second approach (indirect rollover) work?
– For the indirect rollover, the check will be made payable to me?
– Can I deposit this check into my checking/savings account for up to 60 days?

Thank you in advance for your responses.



Submitted by charles lore on Sat, 2009-12-12 16:16

Alan just have a question on the 20% withholding rules. If you are able to replace the amount with other money you’ll get 100% of WH back from IRS?

What if you do not replace the amount and thus rolled over only the 80%. Is the 20% that went to IRS deemed in and of itself a taxable distribution?

Chuck



Submitted by Alan Spross on Sat, 2009-12-12 19:59

frenchguy,

You are “probably” correct that it would not work as intended, but the final decision on this is up in the air, as the IRS has so far failed to clarify this issue with respect to pro rating. So the safe procedure is the indirect rollover method that you described, because there is no doubt about that one since the provision that indirect rollovers by employees are first composed of pre tax dollars is right in Sec 401(c) of the tax code since 2002. So your first approach is a large gamble and the indirect rollover approach is a sure thing.

Yes, the checks need to be payable to you for an indirect rollover, not just mailed to you and made out to the IRA custodian. The latter would be a direct rollover and probably trigger the pro rate rules. Of course, you will be hit with the 20% withholding on pre tax amounts made out to you, but you understand that already.

Your strategy however does have a major flaw. It will have to wait until 2010 for the after tax distribution. If the plan issues you a check in 2009, it will have to reported as a 2009 conversion even if you held it for 60 days. Since your income is too high for a 2009 conversion, it would be a failed conversion. You need to hold off another 3 weeks before ordering the distribution, and then everything will be reportable in 2010. Once you get the checks in 2010, you do have 60 days to complete the rollover to the IRAs. I would wait until 2010 for the entire distribution, not just the after tax amount, as that will insure that you get no 2009 1099R showing part of the pre tax amount as non taxable. That would be another problem to explain to the IRS. By holding off until 2010, that means that the withholding will be 2010 withholding and you can’t recover it for a year. However, you could reduce your other withholding or estimates you would normally have and in effect start to recieve it back piecemeal throughout 2010.

chuck,

Re the 20% withholding – you will get it back from the IRS after you file your return and your other tax payments are sufficient to cover your other taxable income. If not or if you owe the IRS money, the IRS will apply it. You DO get it back if everything else came out equal, ie the amounts you paid in other than the 20% covered your full tax liability or exceeded it.

Taxation and penalty on the 20% withholding depends on what the employee does with the rest of the money. If everything is pre tax, there will be tax and penalty on the withholding unless the penalty is waived by being 59.5 or perhaps the age 55 separation from service exception if it applies.

However, using the example posted by frenchguy, things get more complex were he to not have the funds to replace the withholding. While the withholding itself is only calculated on the pre tax amount, it does NOT result in those funds being forever categorized as pre tax funds. Since he has the money to do the pre tax rollover, by doing so it makes the funds sent to the IRS as withholding after tax because the rollover took what was a floating pre tax amount and wiped out the tax liability due to the rollover. The effective result is that the money held by the IRS becomes after tax, so will not be taxed or penalized. What happens is that he would not have the money to complete the full Roth conversion since the IRS held a share of his after tax money. There is no tax, but his Roth IRA would never receive those funds and the net result would be the same as if he kept part of the after tax distribution and put it in the taxable account. That is probably where the tax refund would go after he received and note that since he is taking the distribution in 2010, this would be 2010 withholding which he cannot recover with his 2009 return. The IRS will have an up front 2010 estimated tax payment in effect.

Bottom line is that if you are not eligible for a conversion in 2009, and therefore take the distribution in 2010 to convert, there is no way to get any 20% withholding directly back fromt the IRS until the 2010 taxes are filed in 2011.



Submitted by Thierry Turc on Sun, 2009-12-13 02:56

Alan,

Thank you very much for your detailed response and identifying the timing flaw of the indirect rollover approach for the after-tax contributions in my specific case.

My problem is that I can not wait until 2010 as you suggested because that 401(K) plan at my last company is closing this coming Tuesday, December 15, 2009 (since that company filed for bankruptcy). If I do not give instructions to the financial institution managing the plan on behalf of my previous company by then, they will sell the mutual funds in my account and transfer the proceeds to an IRA with them.

Since the following two rollover options for my 401(K) after-tax contributions are not available to me in 2009:
– to a Roth, as you pointed out (because my 2009 income is above the $100,000 limit),
– to another 401(K) (because I am currently unemployed),
it seems to me like I can only roll over the after-tax contributions to a Traditional IRA (TIRA).

As previously stated, I also intend to roll over the pre-tax amount of my 401(K) to a TIRA.

Hence my questions:
1) Is a TIRA rollover my only option for after-tax contributions since the plan is closing in 2009?
2) The rollover of after-tax contributions to a TIRA is a tax-free event? Same for the rollover of the pre-tax amount to a TIRA?
3) It would be simpler for the two TIRA rollovers to be direct instead of indirect?
4) Should I put pre-tax and post-tax in the same TIRA or have one TIRA for pre-tax and one TIRA for post-tax?
5) I will have to file IRS Form 8606 for each year I make non-deductible contributions to the TIRA(s), receive a distribution from the TIRA(s) or convert an amount from the TIRA(s) to a Roth?
6) If I want to convert the entire post-tax amount from the TIRA to a Roth in 2010, then the pro rata rule will force me to convert the entire pre-tax amount to the Roth at the same time, resulting in taxes for the pre-tax conversion?

Thank you in advance for your answers.



Submitted by Alan Spross on Sun, 2009-12-13 04:49

1) Yes, it appears to be the only option if you eventually want to convert it to a Roth IRA. I assume you know how the pro rate rules rules go, and that includes the IRA that the plan will shift your contributions to if you do not act. Of course, you could just ask for a tax free distribution of the after tax amount and invest the funds outside of a retirement plan, a much less attractive option than the Roth IRA.
2) Yes, tax free. The tax free status of your after tax contributions in the TIRA are secured by filing Form 8606 reporting the after tax contribution. They are then subject to pro rate rules when you take TIRA distributions.
3) Yes, it’s easier when the final result is the same either way.
4) The only reason to keep them separate is if you think your next employer will accept an incoming rollover to their plan. They can only take pre tax amounts and having the pre tax amount in a separate rollover IRA might make it more attractive for them to accept the rollover. You could then convert the amount left in the other IRA and avoid the pro rate rules (if you have no OTHER TIRA accounts).
5) Yes, that is true. Technically, the IRS does not ask for the 8606 on the employer plan rollover until you take a distribution. I think this is a poorly thought out rule because it is much easier to file one each year than remembering to do it much later. I would be tempted to file it anyway for 2009 if you roll over the after tax amount.
6) Yes, but you could do a partial amount because of the taxes (even with two year deferral). Pro rate rules still apply but the tax bill will be less. Before you convert any of the TIRA next year, consider what the chances of the pre tax IRA amount rollover to a new employer plan per #4 will be. Again, not all plans will accept IRA rollovers.



Submitted by charles lore on Sun, 2009-12-13 16:45

Alan.. again thanks for the answer but lets me put it in my own simple words to be sure I have it. Assume 100,000 in a QP rolled to TIRA.

If am dumb enough to do an indirect rollover the plans send me 80,000 and 20,000 to IRS. THe rules have forced me to do without the 20,000. Since the rules want to see 100,000 rolled into the tira I have to come up with 20,000 somewhere. I i do not and thus roll 80,000 I am deemed to have made a taxable distribution of 20,000. If I am even steven with IRS on all other matters they will take the tax owed out of the 20,000 they confiscated and refund balance.

If I do have 20,000 and thus roll 100,000 to TIRA and am even steven with irs they give me all 20,000 back.

Do I have it?



Submitted by Alan Spross on Sun, 2009-12-13 18:05

Yes, you have it.

The end result gets more complicated when after tax amounts are included in the transaction. It is pretty simple if the plan is entirely pre tax.



Submitted by Thierry Turc on Mon, 2009-12-14 08:20

Alan,

Once again, thank you very much for your detailed response. Now, I would just like to clarify a couple of points.

1) You wrote: “If the plan issues you a check in 2009, it will have to be reported as a 2009 conversion even if you held it for 60 days.”
=> Can you please cite your source of information for that? I scurried around in vain on the IRS site…

2) You wrote that a TIRA rollover of my pre-tax and post-tax amounts “appears to be the only option if you eventually want to convert it to a Roth IRA.”
=> Isn’t it my only 2009 option even if do not want to later convert to a Roth IRA?
(since my current 401(K) is closing tomorrow, I do not have another 401(K) with a new employer, I can not convert to a Roth IRA in 2009 and I do not want to buy an annuity nor invest my 401(K) funds outside of a retirement plan)

3) The rollover of the pre-tax amount to a TIRA is a tax-free event (like the rollover of after-tax contributions to a TIRA)?

4) Out of curiosity, do you have first-hand experience with all these matters because you are a tax accountant or something?

Thank you in advance for your answers.



Submitted by Alan Spross on Mon, 2009-12-14 16:57

1) Following copied from IRA Regs 1.408A-4, Q&A 7:
>>>>>>>>>>>>>>>>>
Q–7. What are the tax consequences when an amount is converted to a Roth IRA?

A–7. (a) Any amount that is converted to a Roth IRA is includible in gross income as a distribution according to the rules of section 408(d)(1) and (2) for the taxable year in which the amount is distributed or transferred from the traditional IRA. Thus, any portion of the distribution or transfer that is treated as a return of basis under section 408(d)(1) and (2) is not includible in gross income as a result of the conversion.

(b) The 10-percent additional tax under section 72(t) generally does not apply to the taxable conversion amount. But see §1.408A–6 A–5 for circumstances under which the taxable conversion amount would be subject to the additional tax under section 72(t).

(c) Pursuant to section 408A(e), a conversion is not treated as a rollover for purposes of the one-rollover-per-year rule of section 408(d)(3)(B).

>>>>>>>>>>>>>>

The tax reporting is triggered by the 1099R issued by the distributing plan, whether IRA or a qualified plan. You will get 1099R forms in late January which will show as a 2009 1099Rs. This is what triggers the IRS to look for the distribution on your tax return. The Reg also explains that after tax amounts (return of basis) are not included (not taxable).

I assume that this plan wants to close their books in 2009, therefore it is highly unlikely that the distribution will be delayed long enough to make it to 2010. That would be more possible were this an individually requested distribution rather than one initiated per their own request. Note that they must issue you a 1099R if they directly roll it to an IRA for your benefit as well, and you would have to report it as a rollover on your tax return. That IRA would be subject to pro rating along with any other IRAs you own even though you did not open it yourself.

2) Under all the circumstances you described, yes, it is your only option.

3) Yes, it is tax free, but 20% withholding will be taken out if you have it distributed to you to put in the IRA you please. If done by them in the IRA they create for you it will be a direct transfer will no withholding. Either way, they will issue two 1099R forms (one for pre tax and one for after tax) and you will have to report them on your 2009 taxes as a rollover on line 16 of Form 1040.

4) I do have tax preparation experience, but mostly this is a hobby and I have done considerable reading and research on all IRA related issues for years. Have made over 3,000 posts on just this site (plus others as you know). If an error is made, there are plenty of tax accountants, financial planners etc who monitor this site and will set the record straight, usually by posting on the same thread. Also, I am not paid or selling anything, so no reason for me to withhold options or slant information. Still, this is internet advice and in many cases not specific to a particular plan or state law. For many, advice here should be taken as a basis for questioning the people they work with and to help avoid pitfalls. Sometimes, original posts omit critical data, and I will assume a situation that may not be the case, but I try to disclose assumptions.



Submitted by Thierry Turc on Tue, 2009-12-15 07:11

Alan,

For a third time, thank you very much for your detailed response. One last question please… and if you have a chance to respond tomorrow (Tuesday) morning, that would be great!

I was advised to separate the pots of money in the following manner (A) for the post-tax IRA (Traditional IRA) and the pre-tax IRA (Rollover IRA):
– post-tax IRA: post-tax contributions + earnings on post-tax contributions,
– pre-tax IRA: the rest of my 401(K) balance,

instead of (B):
– post-tax IRA: post-tax contributions,
– pre-tax IRA: the rest of my 401(K) balance.

I was told it would be easier to apply the pro-rata rules with (A) for Roth conversion purposes.

=> What are in your mind the pros and cons of approaches (A) and (B)?

Thank you in advance for your answer.



Submitted by Alan Spross on Tue, 2009-12-15 23:28

For IRA conversions, the segmentation to each account is immaterial. The tax on the conversion is determined by Form 8606 and you must report the dollar amount of after tax contributions (not including their earnings) in the first year you take a distribution or convert any of these accounts or any other IRA to a Roth IRA. This is also true no matter which account or part of account you choose to fund the conversion. Your IRAs for tax reasons are in only two pots, one for your after tax basis and the other everything else.

If you are concerned about federal bankruptcy creditor protection, it is also worthwhile to keep your IRAs that come from an employer rollover (known as either rollover IRAs or conduit IRAs) separate from IRAs that you have made regular contributions to. The reason is that the rollover ones have no dollar limit on the creditor protection and the others are subject to a total of 1 million plus inflation adjustments. Most states protect IRAs fully, but some do not and you may not know which state you are going to be living in at some point in the future.



Submitted by Thierry Turc on Sat, 2009-12-19 04:09

Alan,

In my last post in this thread dated December 15, I mentioned my plan to roll over:
– the post-tax dollars of my 401(K) into a Traditional IRA,
– the pre-tax dollars of my 401(K) into a Rollover IRA.

Now, I am under the impression that:
1) The post-tax dollars should go into a Rollover IRA (like the pre-tax dollars) instead of a Traditional IRA.
2) A Traditional IRA is not for 401(K) rollovers but for annual contributions.

Am I correct on points 1) and 2) above?

Thank you in advance for your response.



Submitted by Alan Spross on Sat, 2009-12-19 04:32

No.
A rollover IRA just means that the funds came from an employer plan; the rollover IRA could be either a traditional or a Roth IRA. It is NOT a type of IRA, just a description of where the funds came from. The funds can be either pre tax or after tax. A traditional or Roth IRA that is not funded from an employer plan does not have the rollover tag on the registration.

Therefore, both your after tax and pre tax funds should go to a “rollover” traditional IRA, and can go into the same account, but do not have to. If an traditional IRA is a rollover IRA, it might be easier to transfer the pre tax dollars into your next employer’s plan, ie some plans will only accept incoming rollovers from a rollover IRA that is one that you did not make regular contributions to.



Submitted by Thierry Turc on Mon, 2009-12-21 02:07

Alan,

Thank you for your previous answer. Here is another question below…

With my 401(K), when a plan member rolls over pre-tax and post-tax dollars to two Traditional IRAs, the system of my plan administrator by default slices the money this way:
– post-tax TIRA: post-tax contributions,
– pre-tax TIRA: the rest of the 401(K) balance.

However, when a plan member rolls over to a TIRA for pre-tax and converts to a Roth for post-tax, their system by default slices the money this way:
– Roth: post-tax contributions + earnings on post-tax contributions,
– TIRA: the rest of the 401(K) balance.

Do you see the point of putting the earnings on post-tax contributions with the post-tax contributions in the Roth?

Thank you in advance for your response.



Submitted by Alan Spross on Mon, 2009-12-21 03:16

No, I don’t see the point, and this makes no sense. While the plan may contain certain provisions stating what the tax status of distributions are, there is no authority for it to be based on differences between the IRA types that receive the funds and/or the number of traditional IRA accounts that receive the funds.

There could be differences on the status of distributions for an in service employee vrs that for a separated employee, but again not based on the type of IRA receiving the funds.

If the employee takes a distribution and roll it over by indirect rollover, the tax code specifies that the pre tax amounts are deemed the first dollars, and the plan would not even be aware of what the employee did with the funds.



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