401k after tax to a roth ira
Client is 43. He wants to contribute 5500 to a Roth IRA ( he meets the income limit he is under the 120000 Limit ). If he also adds money to the after tax in his 401k. He would like to take the after tax contributions out of the 401k and convert that to a Roth IRA. There are not much earnings as that money is n a money market account in the 401k. The 401k plan allows in service withdrawals of the after tax 401k money.
Can he still contribute the 5500 to the Roth IRA even though he is converting the after tax 401k account to a Roth IRA? What records should he keep?
Permalink Submitted by Alan - IRA critic on Thu, 2018-06-07 03:11
The 401k activity has no affect on client’s regular Roth IRA contributions. Once the 401k rollover to the Roth IRA is done, the client becomes responsible for his Roth IRA accounting. The 401k rollover from the after tax sub account is treated the same as a conversion for Roth IRA purposes. The 5 year holding requirement applies, but only to the gains and the gains will be so small, that the 5 year conversion holding period for the rollover is inconsequential. However client tracks his Roth IRA contributions, he just needs to integrate the rollover into that system and keep a copy of the rollover 1099R.