Solutions for After-Tax Contributions to Traditional IRA
I have someone who met with me yesterday for the first time. She made an after-tax contribution to her traditional IRA last year of about $5,000 – total account value is only around $60,000. She has about $400,000 in her 401k. After explaining the “cream in the coffee” rule, she would prefer not to have to track the after-tax portion by filing forms 8606 on future distributions. A solution would be to convert the $60,000 to a Roth. Are there any other ways to eliminate the after-tax contribution? Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2024-05-24 20:55
A conversion would have a taxable amount of 55k. If the pre tax amount in the TIRA is 55k, and if her 401k is active and will accept IRA rollovers, she could do a direct rollover of the 55k to the 401k, then convert the 5000 of IRA basis tax free. She might be able to roll the 55k (adjusted for gain or loss) back to the IRA in 2025, but she can’t do it this year or the conversion will be taxable.