After tax rollover to Roth IRA
Say you have a 200K 401k made up of 180K pretax money and 20K after tax money. You rollover the 180K pretax to a trad/roll IRA. Can you then rollover the entire 20K after tax money to a Roth IRA. I’ve heard there is a private letter ruling on this. TA
Permalink Submitted by Alan Spross on Fri, 2011-11-18 18:09
I am not aware of a PLR on this point, but there are a couple ways to accomplish this that are allowed under the tax code. There are also other procedures that may or may not stand up to the IRS Notice 2009-68 regarding pro rating of distributions between pre tax and post tax. And there are variables, so any PLR may not be broad enough to apply to your case. But I have not heard of one.
First, the two methods that are supported:
1) This must be done in this order. First request a full distribution of the plan. You will get 164k because there will be 20% of the pre tax amount withheld. Then roll the 180k to a TIRA within 60 days, replacing the withheld money as needed. Last, roll 20k to the Roth IRA in a tax free conversion. You will get credit for the withheld money when you file your return. In other words, you would have to front the 36k for a few months.
2) Do a direct rollover of the entire amount to your TIRA account. Then roll the pre tax amount of all your TIRA accounts into your present employer plan. It leaves behind only your basis (20k) which you can then convert tax free. Check if current employer plan will accept IRA rollovers before proceeding.
Other procedures that “may” work:
1) Some plan administrators will simply do a direct rollover of the 180k to a TIRA and send you a check for the 20k. You then convert it (subject to pro rate rules with your other TIRAs). This is not the intent of the IRS, but they have not changed the way plans report these rollovers, and this has worked in many cases the last 2 years. The IRS could still change things for 2012, but it is too late for them to change custodian reporting for 2011. This is obviously the easiest way, but does have involve risk, and will not work well if you have other TIRA funds.
2) Similar to above, some plans will do two direct rollovers, one to the TIRA and one to the Roth IRA for 20k. But this requires you to know what their 1099R will look like.