After Tax in 401k
I have a cient who is 40. He has a 401k from a previous employer that is worth $500k with $10,000 of After-tax $. He would like to rollover the funds. He makes less than $125k as a married couple so he can contribute to a Roth IRA.
Can he request 2 separate checks from his 401k provider, one check made payable to the new custodian rolling over the pre-tax dollars to an IRA rollover and the other consisting of after-tax dollars made payable to himself, with the idea that he can use that money as a contribution to a Roth IRA for the current tax year? Or, will that after-tax money be coded as a distribution and he be penalized 10% on that money?
Permalink Submitted by Alan Spross on Mon, 2012-03-05 17:01
He could ask for a check for the after tax amount and use it to fund a regular Roth contribution. But if he moved the full amount to a Roth IRA as a rollover contribution from the plan, there could be problems if the IRS required the 10,000 to be pro rated over both rollovers.