Question about after-tax portion of rolled-over 401K

Submitted by David Stahl on Sat, 2017-04-29 18:08

In 2004 I rolled-over my company 401K to an IRA. The entire 401K went into a single IRA. Now I would like to start moving some of the IRA to a Roth and want to make sure I have the correct numbers for the after-tax portion.

The Total Distribution Statement I received at the time of the rollover showed the following:

Source Information
Pre-Tax Matched $x
Pre-Tax Unmatched $y
After-Tax Matched $70,000
After-Tax Unmatched $20,000
Company Contributions $z
Variable Company Match $YY

Distribution Summary
Total Distribution $500,000
Return of After Tax $30,000
Total Taxable Amount $470,000
Ordinary Income Amount $470,000

My question is — if I contributed a total of $90,000 after tax (matched and unmatched) why is $60,000 of this considered taxable?

Thanks



Submitted by William Tuttle on Sat, 2017-04-29 19:21

  • After-tax contributions are tax-free, but earnings on after-tax accounts are taxable.
  • Different plans use different terminology, but I think this is what your distribution statement is saying.
  • The “After-Tax Matched/Unmatched” is the total in those accounts including both after-tax contributions and pre-tax earnings.
  • The “Return of After Tax” is the amount of after-tax contributions.
  • Therefore, $90K – $30K = $60K in taxable after-tax earnings.
  • All Roth conversions will be proportionally pre-tax and after-tax. The vast majority of your Roth conversions will be taxable unless you have a qualifed plan that you can roll all pre-tax assets into.

    • Submitted by Alan - IRA critic on Sat, 2017-04-29 20:02

    Be sure you file Form 8606 to report the 30k of IRA basis so that you can recover the basis tax free. IRS instructions indicate that you should first report this basis when you NEXT have reason to file an 8606 after the year of the rollover, ie. when this basis would affect taxation of any distributions you take from your TIRA account or if you made a later ND contribution adding to your basis. The 30k should be added to line 2 of the next 8606 if you have not taken any distributions since 2004. If you took any distributions in the past without having filed the 8606 you would have overpaid taxes on that distribution, but you could still amend 2014 and later returns if you forgot to apply basis to IRA distributions. 

    Submitted by David Stahl on Sun, 2017-04-30 17:28

    I was afraid that was the answer. 

    Submitted by Alan - IRA critic on Mon, 2017-05-01 03:56

    You do not have any documentation that you actually contributed more than 30k in after tax contributions, do you? If you have any pre distribution plan statements, check what they indicate to be your actual after tax contributions as opposed to what the employer match and earnings were on your AT contributions.

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