ROTH Conversion of after tax ESOP
My client has, as part of his employer’s retirement plan, a 401k and an ESOP. HIs VanGuard statement indicates
his ESOP consists of employer contributions and employee after tax contributions of $152597.63 and $49,402.38
respectively. Also, his statement indicates an after tax cost basis of National Fuel Gas stock (NFG) listed as
pre-1987 after tax value of $2492.30 for National Fuel Gas ESOP 1983-A. This section also states (these
categories reflect statutory and regulatory requirements for after tax accounts).
My client retired in 2003 and has now rolled over these values in total consisting of cash and stock(NFG) in-kind
to an IRA at my firm.
Is it possible for him to convert the after tax employee contributions of his ESOP ($49,402.38) to a ROTH IRA
without triggering a tax since apparently taxes have already been paid on this part of ESOP?
Permalink Submitted by Alan Spross on Fri, 2010-10-22 20:16
Since all these assets have now been rolled over to an IRA, there is no way to isolate basis.
The Inst for Form 8606 indicate that an 8606 should be used to report the added after tax basis to the IRA in the year of the first IRA distribution, not in the year of the rollover. But the important thing is to be sure that the 49,402 (if correct) be added to any other basis in the IRA. Upon conversion, a pro rated amount will be taxable as calculated on another section of the 8606.
I would re check the amount of basis. After tax contributions are normal for a 401k, but my impression is that ESOP shares purchased by the company are all pre tax ??
Also, note that the pre 87 after tax contributions and/or any NUA potential of highly appreciated employer shares are moot issues after an IRA rollover, so the only variable left is applying the correct after tax amount to the IRA basis.