After Tax Dollars in an IRA

Submitted by Malcolm Preece on Mon, 2015-09-21 16:54

I rolled over my employment 401k into an IRA in 2008, my first year for RMDs was 2014. The 401K included after dollars. I took the 2014 and 2015 RMDs during 2015 in accordance with the IRS regulations. I understand that the RMDs include proportionally before tax and after tax dollars. Am I allowed to reinvest the after tax dollars in a Roth IRA?
Malcolm



Submitted by Alan - IRA critic on Mon, 2015-09-21 18:05

  • No, because you cannot roll over an RMD and both the pre tax and after tax dollars count toward meeting your RMD. Therefore, if you are still within the 60 period from the distribution you cannot roll over any of the RMD. However, if you have earned income or a spouse has earned income, you can make a regular Roth IRA contribution using that income unless your income is too high to qualify.
  • In an RMD year, you can still convert to a Roth IRA. However, you must first distribute your entire RMD for the year and then you can convert additional amounts to a Roth IRA.
  • You need to include the after tax 401k contributions rolled over to your IRA on line 2 of Form 8606 when you report your IRA RMDs, and a proportional amount of your RMDs will be calculated as non taxable. If you reported these amounts on an earlier 8606, please advise.
  • Be sure to retain 2008 documentation from your plan that shows the after tax amount that was rolled over in the event the IRS asks about the 8606.


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