Rolling Over After Tax 401(k) Contributions to a Roth IRA
In a very clean example, may someone who has all of his qualified money in his current employer’s 401(k) plan make an after-tax contribution to the plan and then convert those after-tax contributions to his Roth IRA tax free OR will he taxed pro-rata based on the balance in the pre-tax 401(k) plan?
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-21 18:40
First, the plan must allow you to make after tax contributions to a sub account containing only those contributions and their earnings, and second, the plan must allow you to take in service distributions from this sub account. In that case, the only pro rating done is between your contributions and the earnings on those contributions. The rest of your 401k balance is not included in the pro rating.