One 401(k) Check with Pretax and After tax Dollars
Hello,
My client brought me one check from their 401(k) for $1.5mm made payable to their traditional IRA. This one check consists of $1.3mm pretax dollars and $200k of after tax dollars which is identified on the statement. Can I break this one check into $1.3mm into their traditional IRA and the $200k into their Roth IRA? I worry about the cream in the coffee rule and the administrator should have issued two checks. However, my client said they requested two checks but the administrator would only issue one check. Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2024-06-26 15:37
You could if the client and the receiving custodian agrees to it. Some have referred to this as a “mid air conversion” or similar.
I wonder if client specifically referenced Notice 2014-54 when requesting the split direct rollover. The plan has antiquated supporting systems if they cannot offer more than one destination for direct rollovers, although IRS Reg 1.401a(31)-(1) QA 10 only requires the plan to offer one direct rollover destination.
The solution for plan participants when a direct rollover is limited to a single plan in a situation like this is to request that the pre tax direct rollover is made to the TIRA, but a check for the post tax amount be distributed to the participant. This must be allowed per QA 9 of the above Reg. The participant can then do a 60 day rollover of the post check amount to their Roth IRA.
But after a total direct rollover check of both amounts has been issued, the “mid air” process is the only solution if the IRA custodian will cooperate.