Post Tax Contributions in a Rollover
I just did a trustee to trustee rollover of my 401k to an IRA and a Roth IRA.
It was from an employer based 401k to another companies rollover IRA and Roth.
5 days after the three way conference call with the 2 companies I got a check in my name for $12,030.
Nothing was mentioned about this after tax money during the call or that they would be cutting me a check.
I don’t know if it is required of them to do it this way with after tax dollars (Post Jan. 1, 1987) or that he didn’t know about it during the transfer conversation.
My question now is can I take this check and sign it over to my new IRA or Roth IRA without any tax burden on this, since the check was cut in my name?
Would I owe taxes on this money since the statement shows no taxes (fed or state) withheld from it. And they list it as Federal Non-Taxable Portion of the Disbursement: $12,030.00
It just really shocked me when I opened the mail that had that check in it.I thought everything went smooth during the call and didn’t expect this surprise at all.
Any advice would be greatly appreciated as to what my options are.
Thanks, Steve
Permalink Submitted by Alan Spross on Mon, 2012-12-10 02:56
You can either deposit the check into your bank account or endorse it over to your Roth IRA and treat it as a non taxable Roth rollover. You will get a separate 1099R form for the after tax distribution and another one for the direct rollover of the pre tax amounts.
You also mentioned your Roth IRA for the direct rollovers. Sounds like you had some of your pre tax balance rolled into each type of IRA, but the portion rolled to your Roth IRA will be included in your taxable income. You will have up to 60 days from receipt to roll the 12,030 to your Roth IRA if you do not want to just keep the funds to cover current needs. The 12,030 will not be subject to tax or penalty.
Yes, it is strange that neither you or the plan reps recognized that there were after tax contributions to deal with.
Permalink Submitted by Steve Niska on Mon, 2012-12-10 03:32
Thank You Alan,
I logged into my new account and found that they have only posted money into the TIRA account (minus the 12,030) and show zero in the Roth. That must mean they figured out what happened and knew this was the correct procedure to do this.
So, you’re saying that if I kept this money I will not owe any taxes on it? That it wouldn’t be taxable income on my 2012 return?
I’ll probably put it in the Roth but want to understand that clearly if I decide to keep it.
The Roth money was from a 401k Roth with my employer so was done separately into 2 accounts.
The rep from the company that had the money even quoted the totals and they were not the same as my new plan received.
I figured I had recourse in this since it was a recorded conversation and no mention of the after tax was ever even mentioned.
Again I thank you ever so much for your answer, and so quickly too!
Now I can sleep easier tonight,Thank You!
Steve
Permalink Submitted by Alan Spross on Mon, 2012-12-10 16:39
Yes, if you keep the 12k outside of an IRA, the distribution is not taxable to you. You would report the 12k on line 16a of Form 1040, but nothing on 16b which is the taxable amount.
Since you had a Roth 401k account, the rollover to your Roth IRA of that balance is also non taxable and would also be shown on 16a and 16b with “rollover” entered next to 16b. But you need to keep track of the status of this rollover in your Roth IRA. Unless you are both 59.5 and held the Roth 401k for 5 years before the rollover, your Roth IRA balance of regular contributions will be increased by the amount shown in Box 5 of the 1099R you receive that shows Code H in Box 7. This accounting is needed if you ever take a Roth IRA distribution before your Roth IRA is qualified at 59.5 and 5 years.
If you also roll the 12k to your Roth IRA as a tax free rollover instead of keeping it, it will be considered as a non taxable Roth conversion in the Roth IRA. That means that if you ever withdraw it from the Roth IRA, it will be tax and penalty free with no 5 year holding requirement.
The difference in values for the rollovers is natural if you had non cash investments in the plans since those values change daily and the balance they quote you is only good at the actual time of the quote. If the rollover is done a few days later, that value could be more or less than what was quoted.