expiration of back door and mega roth conversion
I understand that a taxpayer wishing to process a back door roth conversion prior to them sunsetting would need to both fund and process the conversion before 1/1/22.
As regards the mega roth conversion (given that we have no control over how long it takes a 401k administrator to process an in service rollover for our clients who are at least 59 1/2 yrs of age), what is the deadline, if any, for the custodian of the receiving Roth IRA to be in receipt of the in service withdrawal?
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-02 22:09
The distribution would have to be made in 2021 and generate a 1099R. The rollover contribution must be made within 60 days of receipt of the distribution. Therefore, the Roth IRA could receive the rollover contribution as late as February 2022 and it would not be affected by the applicable legislative change. If the rollover is received in 2022, the 5498 will be for 2022, and any 5 year period with respect to the 10% penalty on any taxable portion of the rollover would start in 2022.
Permalink Submitted by Rachel Bormann on Fri, 2021-12-03 23:01
Does anyone know how after-tax contributions and earnings will be treated going forward after 2021 when they are eventually paid out? I have a small amount of after-tax in my 401k. If I retire in 5 years and I want to roll over the entire 401k to an IRA and they are still in there, what is the tax consequence? Will they be a taxable distribution at that time? Plus the earnings also?
Permalink Submitted by Alan - IRA critic on Sat, 2021-12-04 02:05
If the after tax contributions are included in the IRA rollover, it will add basis to the IRA that will come out pro rata as calculated on Form 8606 and not subject to tax. If the amount is small enough or you do not wish to bother with Form 8606 for life, you could have the 401k distribute the after tax amount to you tax free instead of rolling it to your IRA. The pre tax earnings on the after tax contributions would be included in the TIRA rollover.