401K Rollover w/ after tax monies
Now that we have the ability to rollover 401k money into a Roth, I am being challenged by the provider. I want to effectuate a dual rollover with a portion (after tax contributions) going to a new Roth and the balance to a new Traditional IRA. My provider is balking. Do you folks know if they can refuse this request? Or, am I stuck with getting the check and placing it into a Roth myself? Any ref to IRS rulings or guidance would be appreciated!
Thank you,
Crazy Connie in Sunshine Land
Permalink Submitted by Alan Spross on Fri, 2009-01-09 21:02
Connie,
Only reason that would be valid would be if the plan provisions limit the number of direct rollovers to one. Otherwise, you should ask them to first do the pre tax portion to the TIRA, and secondly the after tax amount to the Roth. While difficult to follow, this is allowed per Sec 402(c)(2) copied here:
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(c) Rules applicable to rollovers from exempt trusts
(1) Exclusion from income
If –
(A) any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution,
(B) the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and
(C) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(2) Maximum amount which may be rolled over
In the case of any eligible rollover distribution, the maximum amount transferred to which paragraph (1) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to paragraph (1)). The preceding sentence shall not apply to such distribution to the extent –
(A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust which is part of a plan which is a defined contribution plan and which agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B). In the case of a transfer described in subparagraph (A) or (B), the amount transferred shall be treated as consisting first of the portion of such distribution that is includible in gross income (determined without regard to paragraph (1)).
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The last paragraph posted above is the one that indicates that the TIRA transfer is considered the pre tax amount (includible in gross income).
If the plan will only do one direct rollover, have them do the one to the TIRA. Then have them issue you a check for the after tax amount left, and you can roll it over yourself. See Q&A 1 in the following link:
http://www.irs.gov/pub/irs-drop/n-08-30.pdf