Employer Sponsored 401(k) With Basis
It’s my understanding that 401(k)’s that have basis can be transferred to a new a new employer’s plan without the after-tax (basis) funds. This would leave the basis in the 401(k) that could then be converted to a Roth IRA, with no tax consequences.
I know that if you transfer to an IRA first, this is not possible due to the pro-rata rules.
Is this still the case, or has there been recent guidance from the IRS on this issue?
Permalink Submitted by Alan Spross on Wed, 2012-10-10 19:44
No further clarification has been forthcoming from the IRS.
To avoid confusion, the employee should get assurance from the plan that if the after tax amount is distributed to the employee, the 1099R will not show any taxable amount in Box 2a. If so, the plan could do a direct rollover of the pre tax amount to the new plan and that would be reported on a 1099R coded G. The after tax amount paid to the employee would be reported on a separate 1099R coded 1 or 7 in Box 7. This is much more clear than having a combined 1099R reporting different direct rollovers.
The employee will do his own 60 day rollover to his Roth IRA.