rollover of after tax contributions to a Roth
Will the after the amount that can be rolled from a 401k to a Roth include earnings on the after tax contributions, or just the after tax contributions?
Also, the following is an excerpt from ThinkAdvisor
“Advisors, he said (Ed Slott), will have to do “some handholding” and explain the rules to clients, as well as coordinating with their clients’ company plans.
Slott says advisors “will want to make sure the proper allocation of the 401(k) plan distribution to pre- and post-tax funds are reported correctly to the plan so that they report it correctly to the IRS for the 1099-R that the client will receive.”
Specifically, what might we ask or request of the plan administrator to make sure they can do execute correctly?
Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2014-09-24 16:37
The recent IRS Notice does not affect certain plan provisions regarding how the plan determines how much of pre tax vs post tax amounts are included in any distribution. But employees need to determine if their plan balance includes a separate after tax sub account that can be separately distributed while employee is still working. If so, if the employee wants to move the highest amount of after tax contributions to a Roth IRA, they may need to specifically request a distribution ONLY from the after tax sub account. Then they need to request a direct rollover of the earnings in that account (which MUST be distributed with contributions) to a TIRA and the after tax contributions to the Roth. The 1099R for this would not include a taxable amount, and this should be stated in advance by the employee. If employee wants a plan distribution to include two direct rollovers and also distribute an amount to the employee for spending needs, the request might specify that all pre tax amounts be rolled to a TIRA, 2/3 of the after tax amount rolled to a Roth, and the remaining after tax amount distributed to the employee. There would be two 1099R in that case since the codes for direct rollovers differ from those distributed to the employee. It might take some time for plan administrators to review and update their processing to reflect the recent IRS Notice 2014-54 which was only released last week. Plan provisions can vary considerably so there is no one specific instruction that will work best in all cases, so some effort may need to be expended to fully understand how each plan is constructed. Clients may need to provide advisors with written summaries of the plan so that requests can be made which are not ambiguous.
Permalink Submitted by Maggie Benton on Thu, 2014-09-25 19:49
Had a client who rolled her pre-tax money but had to take her after tax direct. Is it possible to put that money into a ROTH now? The rollover happened with last 45 days
Permalink Submitted by Alan - IRA critic on Thu, 2014-09-25 21:11
Yes, if done within 60 days of receipt of the after tax check.
Permalink Submitted by Maggie Benton on Fri, 2014-09-26 04:03
great… thank you for your help