mega back door roth contributions for after tax 401k contributions

Submitted by Theresa Rosen on Mon, 2018-02-12 15:59

Question: After-tax contributions to a company 401k plan can be transferred (distributed/ “rolled over”) to a Roth account…? The earnings on those after tax contributions are to be distributed to a traditional Ira account…?(Not a rollover IRA account) (Pro- rata rule) Just checking. I am planning on having this done annually for my client .
Thank you!
eval(unescape(‘%64%6f%63%75%6d%65%6e%74%2e%77%72%69%74%65%28%27%3c%61%20%68%72%65%66%3d%22%6d%61%69%6c%74%6f%3a%74%72%65%65%73%61%5f%36%33%40%79%61%68%6f%6f%2e%63%6f%6d%22%3e%74%72%65%65%73%61%5f%36%33%40%79%61%68%6f%6f%2e%63%6f%6d%3c%2f%61%3e%27%29%3b’)) Theresa



Submitted by Alan - IRA critic on Mon, 2018-02-12 16:58

  • Client has a choice. Usually the earnings are small enough at the time of the rollover to simply roll the entire after tax sub account balance to the Roth IRA. However, the client could instead request a split distribution per Notice 2014-54 which would move only the contributions to the Roth IRA and the earnings to a TIRA. There would be no tax due. If the direct rollover is only done once per year, there is a greater potential for earnings accumulation than if it was done much more frequently. Of course, the plan itself may limit rollovers to once a year, or some some other number. The 1099R will just total up the annual rollovers.
  • WIth respect to pro rating, it is applied but only to the after tax sub account.The rest of the plan is not included as long as the plan maintains the separate sub account and the distribution is clearly requested only from that source. In some cases, after separation the sub account is no longer treated separately.
  • Another choice is whether to do the direct rollovers to rollover IRAs (both TIRA and Roth) or into IRAs that have received regular contributions. This is a possible issue in states that do not provide much IRA creditor protection.

Submitted by Theresa Rosen on Mon, 2018-02-12 23:24

so what you mean by TIRA.. is a transfer Ira?

Submitted by Alan - IRA critic on Mon, 2018-02-12 23:59

No, traditional IRA. That includes traditional IRAs that are also rollover IRAs or ones that received regular contributions. In a few states such as CA rollover TIRAs may have better creditor protection.

Add new comment

Log in or register to post comments