Another Post-86 / Pre-87 Discussion …

Submitted by Jeffrey McCoy on Sun, 2014-05-04 00:55

I have reviewed the previous forum postings concerning rollovers of post-1986 after tax and pre-1987 after tax contributions. Unfortunately, it is still unclear to me. I have a GE retirement account (Fidelity is the custodian) with $13K in post-1986 contributions and $1K in pre-1987 contributions (so $14K is the total after-tax amount). The balance of the fund is pretax contributions. I want to rollover this entire fund, and Fidelity has told me they can issue separate checks for the pre-tax and after-tax amounts (since they account for them). Which amount should be rolled over to a Roth IRA, without requiring prorated tax payment for this year? Is it the post-1986 or pre-1987 amount? The total $14K would be rolled over to the Roth, so I know I would incur a prorated tax payment, but I am hoping it is on the $1K rather than the $13K amount.

I assume that Fidelity will issue one or more 1099-R forms that will break out both types of distributions (after-tax and pre-tax), properly coded to reflect each type. I can self-report, but it will be easier for me to file with the coded forms. I have always self-filed. I am concerned that this rollover will trigger an IRS contact, but I assume if I document properly in my 1040 filing, they will not. Is this a safe assumption?

Thanks,
Jeff



Submitted by Alan - IRA critic on Sun, 2014-05-04 04:43

Fidelity has been doing this a few years now, and it has not caused any IRS problems to date, but splitting the post tax from the pre tax is not clear based on past IRS Notices. In any event, you should go ahead and have them cut a check for the pre tax balance as a direct rollover to your TIRA, and a check for the 14,000 for your Roth IRA. There is no need to treat the 1k different from the 13k just because it was pre 87. If you feel uncomfortable with the possible risk this has, you could wait until around November to do the rollovers. That late in the year it too late for the IRS to change the tax reporting requirements for qualified plan adminintrators for 2014, so the risk of problems is further reduced vrs doing the rollovers right now. But even now, there is little risk of a problem. The entire rollover would be reported on line 16a with 16b blank as there would be no taxable amount. This is true whether Fidelity issues two 1099R forms or one.

Submitted by Jeffrey McCoy on Sun, 2014-05-04 19:34

Thank you for the clear guidance!  There is about $400 in pre-1987 after tax earnings within that $14K that would be rolled over into a Roth.  Will I have to pay prorated tax on this $400?   Again, many thanks for clearing up a very confusing area for us DIY filers.  I am so glad I found this website, and have bookmarked it for future reference. Jeff 

Submitted by Alan - IRA critic on Mon, 2014-05-05 02:16

You have two choices to consider in this situation:

  1. Report the 400 as taxable on line 16b
  2. Isolate the basis by requesting a check made out to you for the 14,000. You will receive 13,920 because 20% mandatory withholding is required on the 400 taxable amount. Then within 60 days first roll the $400 to your TIRA account by adding 80 of your own money to replace the withheld amount. When this is recorded, then roll the balance of 13,600 to your Roth IRA. This will produce a separate 1099R from the direct rollover for the rest of the account, but will eliminate any current taxation.

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