Rolling Over Pre-Tax 401k Contributions to IRA and After Tax Contributions to Roth
The record keeper is able to directly rollover the pre-tax dollars to an IRA but unable to perform a direct rollover of the after-tax dollars to a Roth. My question is, if they directly rollover the pre-tax to an IRA but distribute a check (consisting of after tax dollars only) and made out to the participant (Indirect), can the check then be deposited into a Roth as a 60 day rollover without any consequences? The IRS notice 2014-54 makes mention that direct rollovers are permitted but am looking for guidance on how a 60 day rollover would be treated. The rollover is not a partial rollover so prorata rules would not apply here.
Permalink Submitted by David Mertz on Fri, 2018-09-28 20:54
The last paragraph on page 3 of IRS Notice 2014-54 covers this situation. As long as both the direct-rollover distribution and the distribution paid to the participant are requested to be made effectively simultaneously and are treated as an aggregated distribution, the pre-tax money is first assigned to the direct rollover and the rest of the aggregated distribution (the after-tax amount in this case) is assigned to the distribution paid to the participant who can then roll it over to a Roth IRA (tax free in this case since it consists entirely of after-tax money) within 60 days. https://www.irs.gov/pub/irs-drop/n-14-54.pdf