After Tax $ Rolled into IRA
A client recently rolled his 401k into an IRA. On receipt of his 1099’s he found that a portion of the rollover was after tax dollars.
They paid out a sum before the transfer took place which he assumed was his RMD for 2013. The employer’s custodian reported it as after tax distribution.
That being said, he now has to take the RMD for last year. How does he handle the remainder of the after tax dollars going forward.
Permalink Submitted by Alan - IRA critic on Tue, 2014-02-18 20:36
When was the direct rollover to the IRA completed? If the plan distributed an RMD for 2013 and the rollover was in 2013, there is no RMD due for the IRA for 2013 unless he had an IRA balance before the rollover. As for the after tax amount rolled to the IRA, it should be reported on line 2 of Form 8606 the first year there is an IRA distribution. The after tax amount should show in Box 5 of the 1099R for the direct rollover and he should have that 1099R now – unless the rollover took place in 2014.
Permalink Submitted by Stuart Cameron on Tue, 2014-02-18 20:39
Alan, the rollover was completed in 2013. The 1099 from the plan shows a distribution of after tax dollars only. He became 70 1/2 in 2013. He thought the after tax distribution was his 2013 RMD.
Permalink Submitted by Alan - IRA critic on Tue, 2014-02-18 22:03
OK, the after tax distribution from the plan was his 2013 plan RMD. The rollover contained the rest of the after tax balance. There would be no other 2013 RMD unless he had an IRA before the rollover and that IRA RMD had not been done and must be done prior to 4/1/2014. Either way, there will be an IRA RMD due for 2014 and Form 8606 should be filed to show the amount of after tax contributions that were rolled over (From Box 5 of the 1099R coded G to report the rollover). Henceforth, he will always have to file the 8606 for his IRA RMDs and part of those RMDs will not be taxable. Not sure if this answers all your questions.
Permalink Submitted by Stuart Cameron on Wed, 2014-02-19 14:11
Alan, so even though the entire distribution was after tax dollars as shown in the 1099R, it counts as the RMD?. So in fact no taxes were paid on this distribution.
Permalink Submitted by Alan - IRA critic on Thu, 2014-02-20 04:14
Yes, any distribution taken from the plan counts toward the RMD. It does not have to be taxable. If it’s in Box 1 of the 1099R it counts.