Roth distribution

Submitted by Robert Ervolina on Wed, 2018-01-03 17:20

Hi:

My client terminated service from her employer in May of 2016. Her 401k consisted of approx. 400k pre-tax, which was rolled into her IRA, and $5,286 after-tax which we rolled into her existing Roth. She is 53. She would like to take a distribution from her Roth, but only to the extent it is a qualified distribution.(no exception applies) My question is how to determine how much of the $5,286 is contribution versus gain which was rolled over? I assume a portion of that amount is gain, but if the former 401k plan cannot provide the breakdown, any suggestions on how to determine how much she can take from the above amount, meaning contributions and leaving gain in the Roth? When someone rolls over after-tax into a Roth as she did, is any gain included or just straight contributions? Thank you.



Submitted by Alan - IRA critic on Wed, 2018-01-03 19:38

  • If the IRA rollover was done correctly, any gains in the after tax sub account would have been rolled over to the TIRA with the rest of the pre tax balance. The 5286 would all be after tax as a non taxable qualified rollover contribution to the Roth IRA. This can be confirmed by the 1099R Box 5 issued by the 401k plan, which would show the entire 5286 as after tax. If the entire amount was not after tax, Box 5 would show the after tax amount and Box 2a would show the taxable amount.
  • Her Roth IRA is NOT yet qualified, so any distributions she takes will follow the Roth ordering rules. Her regular contributions will come out first tax and penalty free, then her conversions and qualified rollovers such as the 5286 starting with the oldest conversion. Therefore, it is very likely that she would distribute as much as she needs before even getting to this particular rollover amount. But if she does get to it, it would come out tax and penalty free since it apparently was a non taxable rollover, so the 5 year holding period does not apply to it. Hopefully, she has maintained a record of all her Roth contributions and distributions from the start, or she will not be able to properly report the Roth IRA Distribution on Form 8606 as required. If she does not have the records, it could be a considerable job to reconstruct the composition of her Roth IRA.

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