401k rollover with non deductable money

In 2004 a client set up a Rollover IRA with 456k to accept 401k proceeds. In the rollover 64k was non-deductable money and at time client was not given a option to split proceeds.

Now the client wants to pull out 20k of the non-deductable portion and told by the Financial Institution they have totake a pro-rata amount since the money is commingled?

Can the money be split into two new IRA’S one a Roth nd the other a Tradtional to separte money?



No. Once any after tax funds have been deposited in a traditional IRA, the only way to separate them is to roll the pre tax amounts for all owned IRAs into a current employer plan if the plan will accept IRA rollovers. The remaining basis can then be converted to a Roth IRA tax free.  Otherwise, all distributions and conversions must be done on a pro rated basis using Form 8606. Client should have reported the 64k of added IRA basis on Form 8606, but if not yet done, should make a note that it needs to be reported the next time an 8606 would otherwise need to be completed. The amount goes on line 2 and is added to any other IRA basis client has.



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