Post Tax 401k money
I am about to roll over a 401k from a job ive had for 20 years. The guy at the fund company who is helping me with this process told me that part of the money in there is Post Tax….like $20k. He said that there would have to be 2 checks cut. One for the pretax rollover and one for a Roth IRA. I didnt think the post tax piece could be rolled over into a Roth. I thought i would just have to take the post tax money as a distribution. Do i have this right? Can these funds actually go into a ROth IRA?
Permalink Submitted by Alan - IRA critic on Wed, 2023-12-27 15:24
Yes, you can request a split direct rollover per Notice 2014-54, directing the pre tax balance to a rollover IRA and the 20k of after tax funds to your Roth IRA. There will be no tax due. If the plan will not do the two rollovers and instead sends you a check for the 20k, you can still roll it over to your Roth IRA within 60 days.
Permalink Submitted by Matthew Morea on Wed, 2023-12-27 15:30
I am certainly not going to question your answer but i just find it very hard to believe that post tax money – which was put in after tax into a 401k – before there was ever a roth ira can be rolled over to a roth which has totally different characteristics. What a loophole that is. i would have loaded up my 401k with after tax money for years then just rolled to ROth. Thanks for your prompt response….appreciate it
Permalink Submitted by Alan - IRA critic on Wed, 2023-12-27 21:00
The Bush tax cuts in 2001 first authorized the rollover of after tax money to an IRA. The PPA of 2006 authorized direct rollovers to Roth IRAs effective in 2008, and in 2010 the income limits for qualified rollovers (conversions) to Roth IRAs were lifted. FInally, Notice 2014-54 clarified that distributions to different types of accounts could be treated as a single distribution for purposes of allocating pre and post tax money.