401(K) RMD with After Tax Contributions

Submitted by Glenn Hammill on Thu, 2012-01-05 17:57

When calculating the RMD for the above, I take it you must include the after tax contributions… right?

Since there is “basis” for these contributions, I take it the after tax contributions are pro-rated over the life of the 401k much like an IRA that has tax basis?

Are there any other special rules for after tax contributions in 401k’s?

Thanks,

Glenn



Submitted by Alan Spross on Thu, 2012-01-05 22:32

Yes, the RMD will include pro rated pre tax and post tax amounts. The 1099R issued by the plan will show the gross distribution and the taxable amount in Box 2a. There is no Form 8606 required as there is for IRA distributions that include non deductible contributions because the plan is responsible for the book keeping for employer plans, not the taxpayer.

There are no special rules, but if the plan is rolled over to an IRA, Form 8606 would be filed for the IRA showing the after tax amount on line 2 that was rolled over to the TIRA.

If the after tax amount in the plan is significant, it would be wise to consider how best to transfer the after tax amount into a Roth IRA where it will earn tax free and not be subject to future RMDs. If there are pre tax IRA balances now, converting directly from the plan will avoid pro rating with the IRA. In either case, for any year a Roth conversion is done, the RMD must be fully satisfied before converting additional distributions to the Roth IRA.

And if there is any highly appreciated employer shares in the plan, NUA should be considered. However, NUA is not possible after the first RMD year.

Submitted by ShipsnGiggles on Mon, 2015-01-12 23:06

dollars in a 401(k) are not used in detrmining the account value used to determine the RMD amount?

Submitted by Alan - IRA critic on Tue, 2015-01-13 00:01

No such scenario since the entire balance (pre tax plus post tax) as of a year end is used to calculate the following year RMD.

Submitted by Shawn Jones on Fri, 2017-11-10 17:41

Since the 2014 Rulings, may an RMD for a 401k account be taken with only the after-tax dollars in the account (assuming there is a sufficient balance of after tax money to meet the RMD)~? 

Submitted by Alan - IRA critic on Fri, 2017-11-10 18:15

  • A participant can request a separate after tax distribution if they have a pre 1987 after tax balance tracked by the plan and request that the RMD be paid from that balance, but many people do not have a pre 87 after tax balance or it is too small to amount to much.  Post 1986 after tax amounts are generally in the same after tax sub account as the pre 87 amounts. Some plans may allow that account to be tapped separately after separation and the only pro rating would be with earnings also in the sub account. Other plans may not allow separate distributions from the after tax sub account after separation. The participant would have to check with the plan. As for RMDs, any distribution, whether pre tax, after tax, or NUA shares will be credited against the RMD. 
  • Notice 2014-54 is often used to request a split rollover, with the after tax balance in the plan going to a Roth IRA, and pre tax to a TIRA. But once the participant reaches RMD age, the RMD must be satisfied before any rollover is done. 

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