After-Tax Retirement Plan where participation began 30 years ago
I have a client who participated in several retirement plans at a hospital for 30+ years. Three were pre-tax plans and three were after-tax plans. The three after-tax plans were titled Elective After -Tax Contributions, Non-Elective After-Tax Contributions, and Elective After-Tax Contribution each having a separate account number, held at VALIC. Upon termination, client would like to transfer pre-tax accounts to her traditional IRA and the three after-tax accounts to her Roth IRA.
Question: Are the three After-Tax accounts treated similar to a Roth 401(k) where only the contributions can be transferred (rolled over) to her Roth IRA and the earnings (growth) have to be transferred (roller over) to her traditional IRA or can the earnings (growth) be roller over to her Roth IRA also in addition to the contributions?
Permalink Submitted by Alan - IRA critic on Wed, 2017-05-24 23:05
Client should confirm with VALIC that all these plans are eligible for rollover to an IRA. If so, the earnings in these plans will be eligible for direct rollover to a Roth IRA and this is simpler than a split rollover, but the earnings will be subject to tax. In most cases it will be more beneficial to determine if VALIC will recognize Notice 2014-54 and do a split rollover with the contributions to a Roth IRA and earnings to a TIRA. There would be no taxes due for this type of distribution. Later, if client wants to convert incremental amounts from their TIRA to a Roth IRA, they could do so.