After-tax contributions and earnings to a Roth

Submitted by Jeff Ingream on Tue, 2017-12-05 21:00

I have both before and after tax contributions and earnings in a 401k. Being that I’ll be retiring soon, I will rollover my before-tax and it’s earnings into an IRA. My question is – if I rollover all of my after-tax earnings into a roth, are those earning taxable ? I know that my after-tax contributions are not taxable. i.e. $200000 in 401k, 150,000 is before tax contributions and earnings, the remaining consists of 10,000 in after-tax contributions and 40,000 is earnings on the after-tax money. If I rollover the 40,000 of after-tax earnings in to a Roth, is it EVER taxable?



Submitted by Alan - IRA critic on Tue, 2017-12-05 21:44

  • If you roll any earnings or other pre tax money into the Roth, it will be taxable. If you want to pay NO current tax, just request a split rollover of all pre tax amounts to your TIRA (190,000 in your example) and 10,000 to your Roth IRA. There will be no taxes due. Of course, if you want to include some pre tax amount and pay the taxes, you can do that by being specific in the direct rollover request. 
  • If you DID want to roll the entire after tax account to your Roth (50,000), you would owe tax on 40,000. If you then withdrew that 40,000 from the Roth in the first 5 years (unless you are over 59.5), you would owe a 10% penalty  or 4,000, but no ordinary income tax. If you are about to retire, you should probably not roll taxable amounts into your Roth IRA this year. After you retire, you will probably be in a lower bracket and can convert incremental amounts then if conversions are beneficial. But getting that 10,000 into your Roth at the time of the direct rollovers is a no brainer. Do not roll it into your TIRA or you will trigger the lifetime pro rate rules for all TIRA distributions.

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