After tax 401k contributions rolled in IRA in 1997
In 1997 I rolled-over my 401k into an IRA – $128k of the rollover consisted of AFTER-TAX contributions. I have my statement from the rollover proving this. I recently learned I should have filed an 8606 in 1997 and every year thereafter. Is this correct and where on the 8606 do I show this after-tax figure? Thank you.
Permalink Submitted by mk foss on Thu, 2012-03-29 16:32
Line 2 of Form 8606 is the total basis line. I would file a 1998 Form 8606 and put the basis there – if you can’t find a 1998 form, take a more current one and cross out the date inthe upper right and write in 1998. Send the form (after signing on the second page) to the IRS Center where you file your returns with an explanation. Form 8606 is due in the years that you make a contribution and the years that you take a withdrawal so I think that just one return should be sufficient.
In your explanation, request that any penalties be waived because you just learned of the requirement. Keep a copy of the form, there is a penalty for claiming basis without previously filing Form 8606 and you want to be prepared.
Good luck.
Permalink Submitted by Alan Spross on Thu, 2012-03-29 17:11
I think you need to take another look at this transaction since after tax 401k contributions were not allowed to be rolled into an IRA until 2002. This was part of EGTRRA (aka Bush Tax cuts) passed in 2001. The following is copied from a list of portability enhancements effective in 2002 under that legislation:
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B. Rollover of After-Tax Contributions.
Effective for distributions made after December 31, 2001, the bill permits the rollover of after-tax contributions from a qualified plan to another qualified plan or a traditional IRA. Plan-to-plan rollovers of after-tax monies must be direct rollovers. Plans accepting such rollovers must separately account for them.
After-tax contributions in an IRA (including those rolled from a qualified plan and nondeductible contributions to an IRA) are not permitted to be rolled over from the IRA to a qualified plan, 403(b) annuity, or 457 plan. In the case of a distribution from an IRA that is rolled over into those plan types, the distribution is attributed first to taxable amounts (i.e., all amounts other than after-tax contributions).
Additionally, the Explanatory Statement provides that the IRS is directed to issue rules with respect to reporting and mechanisms to address mistakes relating to rollovers and to develop forms (for example, by expanding the Form 8606) to assist individuals in tracking after-tax contributions rolled over to an IRA.
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Also, here is a link to the 2001 edition of Pub 575. On p 24 note that after tax contributions are included on a list of things that are excluded from “eligible rollover distributions”. The change to allow these was reflected in the 2002 Pub 575:
http://www.irs.gov/pub/irs-prior/p575–2001.pdf
How was this rollover accomplished? You must have done this yourself rather than being part of a direct rollover, ie. you received a separate check for the after tax amount and within 60 days rolled it into your IRA? Perhaps the IRA custodian simply assumed the funds were pre tax or they should not have accepted them. So if this after tax rollover actually occurred, you have an excess contribution to your IRA which would result in many years of 6% excise taxes. There is no statute of limitations for excess IRA contributions, so the IRS could still hit you up with these penalties if they ever discovered this. Sending in an 8606 showing a much larger amount than you could make as a non deductible TIRA contribution would be a huge red flag, so I would think twice about doing that. In addition, while the IRS routinely waives the penalty for sending in late 8606, these waivers do not apply if you overstate your basis in an IRA that does not exist or should not exist as in this case.