After Tax 401k Contributions to a Roth IRA?

Submitted by Todd Martin on Fri, 2017-06-16 23:00

Have a client that passed away and her spouse is rolling over her 401k to his own IRAs. The vendor sent him 3 checks; one for the pre-tax contributions to go to his IRA, one for the Roth 401k contributions to go to his Roth IRA, and the 3rd for “after-tax” contributions. Can we put the “after-tax” contributions into his Roth IRA as well or do they need to be rolled over to the IRA? The client is 62 and his deceased spouse was 57. Thank you for your assistance.



Submitted by Alan - IRA critic on Sat, 2017-06-17 02:50

How are these checks made out?  Are some or all of them direct rollover checks made out to his IRA custodian? If made out to him personally there will be some withholding to deal with.

Submitted by Todd Martin on Mon, 2017-06-19 18:46

All the checks are made payable to the custodians directly FBO the client.  Can we put the “after-tax” check into his Roth IRA or should that check go into his Roth IRA?  Both his Roth IRA and IRA are with the same custodian.  Thank you Alan for your help.

Submitted by Alan - IRA critic on Mon, 2017-06-19 19:25

The after tax check should be rolled into his Roth IRA, not the TIRA.  Would have been easier if the after tax check had also been made out to the custodian FBO client’s Roth IRA, but client should still be able to get the current custodian to deposit it in his Roth IRA.

Submitted by Ben Meyer on Tue, 2017-06-20 03:11

It is likely that the “after-tax” check is from the After-Tax Subaccount of the 401(k).  In this case it will contain both the after-tax voluntary contributions to the 401(k) and also the earnings in those contributions.  Therefore, the earnings will be taxable when deposited into a Roth IRA, since this is actually a conversion from a non-Roth 401(k).  Next January three forms 1099-R will be received in all likelihood, one for each of the 401(k) sub-accounts.  The 1099-R for the After-Tax Subaccount will show the total subaccount value in box 1 and earnings as the taxable portion in box 2a.

Submitted by Alan - IRA critic on Tue, 2017-06-20 04:08

Benn, that is possible but after separation and after the death of the participant, many plans will merge the earnings in the after tax sub account with other pre tax amounts distributed, similar to what the participant might do with a Notice 2014-54 type split rollover. There might be 2 or possibly 3 1099R forms to report these direct rollovers, so the beneficiary may want to find out if there are any pre tax earnings  included in the after tax check. If there does happen to be a modest amount of earnings included in that check, but small in relation to the after tax contributions amount, the check in most cases should still go into the Roth IRA.

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