After Tax 401k rolled to IRA in 2004
I have a client that rolled over her 401k account into to 2 IRA accounts, keeping her after tax monies in a seperate IRA account.
Now 6 years later she would like to start taking withdrawals. First question can she convert her after tax account to a roth IRA with no taxes due. If not does she have to use form 8606 and what dollar amounts does she use for the pro rata formula.
Thank you, Jeff
Permalink Submitted by Alan Spross on Thu, 2010-03-18 01:11
The IRS now wants after tax 401k rollovers to a TIRA to be reported on an 8606 in the year the next distribution is taken from any TIRA of the owner. Therefore, in order to utilize the pro rate rule on taxable distributions (including conversions), the 8606 filed in the distribution year should include the amount of the after tax rollover on line 2, and it is then added to the balance of IRA non deductible contributions to create a total dollar basis. Remember that all IRA accounts are combined into one large account for computing taxes on distributions, so she cannot simply convert the after tax account. The same amount will be taxable no matter which account she uses as the source of her conversion.
The amount of after tax dollars included in the 2004 distribution should show on the 1099R form issued for 2004. If she has taken other distributions after 2004 and before this year, and not handled it correctly, amended returns would be in order for years 2006 to 2009, if applicable.