Distributing After Tax 401k Dollars
I have a client that many years ago contributed after-tax dollars to his company’s 401k Plan. He has since separated from service (retired). His current statement identifies the after-tax balance at $50k. This includes some company match at the time of contribution. His contribution was approximately $10k. The current pre-tax balance of the plan is approximately $750k. He would like to rollover his pre-tax portion of his 401k Plan to a Traditional IRA and the after-tax portion to a Roth IRA.
It is my understanding that to do this he would have to complete both rollovers at the same time and only the after-tax contribution (exclusive of the gains) would rollover to the Roth IRA tax free. Any insight, clarification or questions would be greatly appreciated.
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2015-08-10 17:57
Yes, IRS Notice 2014-54 will allow the client to simultaneously request that the pre tax balance be directly rolled to a TIRA and the after tax balance directly rolled to a Roth IRA. No taxes would be due on these direct rollovers.
Permalink Submitted by Samuel Taylor on Tue, 2015-08-11 12:18
Thank you. Just one clarification. In my scenario, would the entire after-tax balance be eligible for a tax free rollover to a Roth IRA or just the after-tax original contribution?Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2015-08-11 19:05
He would direct the full after tax balance to the Roth IRA. That would include all after tax contributions no matter when they were made.