Roth Conversion of After-Tax Money from 401k
We are considering moving after-tax money in a 401k into a Roth via a conversion. We have looked at several sources and there doesn’t seem to be much information on this. We haven’t found anything explicitly prohibiting it, but nothing specifically outlining how to do it. We want to check for risk and what the worst case scenario would be in terms of penalties from the IRS.
Permalink Submitted by Alan - IRA critic on Tue, 2014-08-05 23:39
There are endless posts here about this strategy, known as isolation of basis. Some methods are less risky than others. Does your 401k have an after tax sub account serving as the source of this rollover. How much in earnings on the after tax contributions are in the account? Have you separated from service?
Permalink Submitted by Avi Grin on Fri, 2014-08-08 16:50
Is this doable?http://whitecoatinvestor.com/the-mega-backdoor-roth-ira/
Permalink Submitted by Alan - IRA critic on Fri, 2014-08-08 17:15
Yes. The plan must have an after tax sub account to which after tax contributions can be made and from which in service distributions can be made which will include the earnings from the after tax sub account. Rollovers to a Roth IRA done frequently enough to prevent earnings buildup in the sub account will result in the rollovers to be tax free or nearly so.