Can only the After-Tax Portion of 401k be rolled post retirement?

Submitted by Paul Avegno on Wed, 2017-12-13 23:54

Client age 58 is retired from company. 401k value ~$1MM, of which ~$200k is after-tax. Roth is not available in the plan, and he would like to move only the after-tax portion to a Roth IRA. Is this allowed? If so, where is the IRS language to support the move?



Submitted by Alan - IRA critic on Thu, 2017-12-14 00:50

  • The problem is that some plans continue the after tax sub account after retirement and some do not. If the sub account remains able to be distributed separately, the client could do a Notice 2014-54 split rollover of ONLY the sub account balance. That might be something like 200k in AT contributions and maybe 100k in earnings on those contributions where the 200k goes to client’s Roth IRA and the earnings to a TIRA as direct rollovers requested as a single distribution.
  • However, if the plan no longer allows separate distribution of the sub account post retirement, the only way to get the full 200k distributed to the Roth is to also move the entire rest of the 1mm to a TIRA per Notice 2014-54. The obvious difference here is that perhaps 700k must move to the TIRA in this scenario, but can stay in the 401k in the above scenario. Client will have to ask the plan administrator if the earlier option is possible per the plan provisions. The IRS allows either, so this is a plan provisions issue, not an IRS question.

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