Transfer of after-tax and before-tax dollars from 401k to IRA’s

Submitted by Barbara Lane on Thu, 2017-02-02 19:17

I need some help in regards to transferring a client’s account from their current 401k that has before and after-tax dollars contributed to the account. The employer wants to rollover the 401k to an IRA, but will not do a rollover of the after-tax dollars directly into a Roth IRA. If I am reading the IRS Notice 2014-54 correctly, it seems like this should be something that can be done. Does anyone have any experience with this type of rollovers?



Submitted by Alan - IRA critic on Thu, 2017-02-02 20:07

  • It certainly can be done and this plan administrator is obviously not up to speed with Notice 2014-54. If client thinks that providing a copy of the notice will help and he has some time, he should provide a copy of the notice https://www.irs.gov/pub/irs-drop/n-14-54.pdf
  • If no luck, it will also work if a direct rollover of the pre tax balance to a TIRA is done and a check sent to client for the after tax balance. There should be no withholding on the after tax balance and client can then do a 60 day rollover to the Roth IRA. This is the way things were done prior to the Notice. There would be a separate 1099R for each.

Submitted by Barbara Lane on Fri, 2017-02-03 16:03

This company is United Technologies, so it’s a large company that you would think would have their act together. They said that since some of the AT dollars came into the account prior to 2014, they have to roll over the BT dollars to the TIRA, and a check sent to her in her name. So is that OK that the check is sent in her name, as long as there is no withholding, and then just send a new check to the Roth from the client for the total amount? What kind of tax forms are needed then?

Submitted by Alan - IRA critic on Fri, 2017-02-03 16:59

Yes, doing a 60 day rollover is OK. The TIRA direct rollover is reported on a G coded 1099R and the after tax distribution on a separate 1099R coded 7 if client is over 59.5, 1 if under. Client will report the total amount of both 1099R forms on line 16a, 0 on 16b and “rollover” entered next to 16b. There are no other tax forms needed to file the return.

Submitted by Ben Meyer on Fri, 2017-02-03 18:03

It would be interesting to know what company is performing the recordkeeping function for UT?  Probably one the of the larger benefit administrators, but which one?  They are making a peculiar interpretation of Notice 2014-54.

Submitted by Barbara Lane on Fri, 2017-02-03 20:00

I believe it is either Aon corp or one of their divisions.

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