Employee After Tax Pre 87 to Roth
Client has $608,000 in a 401(k) with $82,500 of that amount listed as employee after tax pre-87. The goal is to roll the company match, employee pre-tax contributions, and profit sharing into a TIRA and roll the after tax pre-87 to a Roth IRA. There is no company stock so NUA doesn’t apply. I contacted the 401(k) administrator to obtain the basis of the pre-87, however they don’t have record of the basis. In reading previous forum posts I understand the basis to be tax free, but the gains may be taxable when rolled to a Roth? Is it necessary to track down previous 401(k) administrators to obtain the basis, or could an indirect rollover of the pre-87 to a Roth accomplish the same result? Would there be any tax ramifications for indirectly rolling over the pre-87?
Permalink Submitted by Alan - IRA critic on Wed, 2015-03-25 18:26
Notice 2014-54 reduces the significance of pre 87 after tax contributions, because under the Notice the employee can separate all after tax contributions (pre 87 and post 87) from the plan pre tax amounts in doing direct rollovers to IRAs. If employee has separated from service, they can request that the pre tax amount be directly rolled to a TIRA and the after tax amount to a Roth IRA. There would be no taxes due. If client has not separated from service, any amounts eligible for distribution can be separated in like manner. However, if the current plan administrator does not have a record of total basis at all, that is a serious problem and a violation of the tax code. But if they just cannot separate the pre 87 from the post 87, that no longer matters if the employee has separated, although it might if employee is still working.