Dividing a Rollover IRA into Trad and Roth
I have a friend who rolled a 401(k) into a Traditional Rollover IRA a while back, and a lot of her contributions were post-tax. The Roth 401(k) option was not available at the time. She would like to divide the Rollover into 2 parts, but I believe that would constitute a Roth Conversion, and would not be beneficial tax-wise. Can this be done, or is the best bet to claim a tax-free portion of any withdrawal for the future?
Steve
Permalink Submitted by Alan - IRA critic on Sun, 2015-05-17 16:47
Once post tax contributions are rolled into a TIRA account, there is only one way to separate them from the pre tax contributions, and that is to roll the pre tax balance of all TIRA accounts back into a current qualified plan. The remaining IRA basis can then be converted to a Roth IRA tax free. If the rollover to a qualified plan is not possible, then she must make an important note to herself to file Form 8606 reporting the after tax amount on the rollover on line 2. This should be done the next time she would OTHERWISE have to file Form 8606. This will enable any distributions from the TIRA including Roth conversions to be partly non taxable under the pro rate rules. She should keep the 1099R that reported the rollover because the amount in Box 5 documents the amount of after tax contributions that are now in her TIRA to be reported on her next 8606 form.
Permalink Submitted by Steven Van Wie on Sun, 2015-05-24 12:05
Exactly what I thought! Thanks for your confirmation. Steve