IRS Notice 2014-54 – After-tax Monies Rollover to Roth

Submitted by Peter Cool on Sat, 2014-11-29 01:17

Less than 59 ½ years old; 401K plan allows in-service withdrawal/rollover per below:

Rollover Amount: $500k;
Taxable Amount: $300k;
Non-Taxable Amount: $200k.

Per IRS Notice 2014-54 I am directing 100% of the Taxable amount be disbursed to Rollover IRA account. I am directing 100% of the Nontaxable amount be disbursed to Roth IRA account. I want this transaction structured as a direct rollover or trustee-to-trustee transaction.

My 401K Administrator is making this difficult they don’t want to distribute my funds to multiple accounts as allowed under 2014-54. They will support a direct rollover of 100% of the amount to either my Rollover IRA or my Roth IRA … they are reluctant to issue two checks and disburse the amounts to these two separate accounts. They seem to be slow in adopting 2014-54. They don’t care if I have the receiving end split the amounts into the two accounts; they seem bent on overly protecting themselves on this transaction; and making it difficult on everyone else. Can the 401K administrator restrict one in this fashion …. what are my options?

1) Go ahead and have them issue me one check made payable to the Financial Institution; and have the receiving Financial Institution split the amounts into the two accounts? I called two different Financial Institutions and they will readily support this. The 1099R should be correct … Direct rollover Code G. And I will receive two correct 5498 forms. The disbursement of the funds into the two accounts will be made at the same time and should be treated as a single distribution without regard to whether the recipient has directed that the disbursements be made to a single destination or multiple destinations.

2)Have the full Rollover Amount disbursed to me directly; minus the 20% tax withholding on the Taxable Amount. Use additional monies to make up the 20% and then perform two separate 60-day rollovers; performing the Rollover IRA transaction first then the Roth IRA transaction. File 2014 tax return and get the 20% refund.



Submitted by John Clark on Mon, 2014-12-01 21:16

I am in exactly the same situation. Less than 90 days ago a trustee to trustee transfer was made from the old employers 401k into a self directed IRA. A non taxable amount was included. Can I roll over the IRA amount equal to the non taxable sum, or does it need to be taken pro-rata?

Submitted by Alan - IRA critic on Mon, 2014-12-01 21:42

  • Once a rollover including after tax money has gone into a TIRA, the after tax money cannot be separated and is subject to Form 8606 pro rata calculation of the taxable amount of any distribution or conversion. There is one way around this, and that is to roll the pre tax TIRA balance into a current employer’s qualified plan leaving behind only the after tax basis in the TIRA. The remaining after tax IRA balance can then be converted tax free.
  • The after tax amounts in the old employer plan could have been separated and rolled into a Roth IRA at the time of the distribution, but that was prior to Notice 2014-54, and methods of isolating the basis varied and had different amounts of risk due to prior IRS Notices. As it turned out, any of those methods would have worked, but the IRS position at the time was unclear. It is too late now other than using the method outlined in the above bullet point.

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