Qualified Plan In Plan Conversions
Good Morning. If a client converts after tax contributions in a 401k to Roth within the plan does this impact the pro-rata rule on Traditional IRA balances? Thank you.
Good Morning. If a client converts after tax contributions in a 401k to Roth within the plan does this impact the pro-rata rule on Traditional IRA balances? Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2022-09-20 16:44
No, it does not. Qualified plans are totally separate from IRAs. However, the after tax sub account in a 401k also contains any earnings on the after tax contributions, therefore an in plan Roth rollover (IRR) will be partially taxable based on the amount of earnings on the contributions. The IRR should be carefully ordered to make it clear that only the after tax sub account is being rolled to Roth, since many plans also offer IRRs from the pre tax portion of the plan, which would be 100% taxable.