post retirement 401k rollover

Submitted by Thomas Ferry on Tue, 2017-09-19 19:00

Retired client has $1.7m remaining in 401k.
$200k of it in Roth 401k and $400k of it is after tax contributions. Rest is pretax contr and ER match.

Can he roll the $400k after tax value directly to a Roth IRA?

Can it be the only amount rolled, while leaving the remaining balance in the 401k?

What happens to the $400k if client dies while all of it remains in 401k? What are the beneficiary/spouse’s options as it relates to the $400k after tax portion?



Submitted by Alan - IRA critic on Tue, 2017-09-19 19:26

  • The 400k and the earnings generated on these after tax contributions are is a separate sub account, which generally can be distributed separately from the rest of the 401k. The 400k cannot be distributed separately from those earnings (except for pre 1987 after tax contributions), so assuming the client does not want to be taxed on the earnings he would have to request a split rollover per Notice 2014-54 where the 400k would be directly rolled to his Roth IRA and the earnings to his TIRA account. Of course, the designated Roth portion must go to his Roth IRA. That said, a simpler approach would be to have the entire balance other than the 400k and the designated Roth portion rolled to his TIRA. There are some plans that contain provisions requiring a total distribution or pro rated distributions, so he will have to verify with the plan what his options actually are. A plan MUST allow a total distribution, but is allowed to restrict partial distributions in various ways that would be more restrictive than what is allowed in the tax code.
  • A surviving spouse would have the same options as the participant with respect to Notice 2014-54. Keeping the plan in place as inherited will generally result in much larger RMDs than rolling it over to her own Roth and TIRA accounts. She would have no Roth IRA RMDs, but would have Roth 401k RMDs. Her RMDs from the plan depend on both her age and participant’s age at death. 
  • While the situation is already complex, if client had appreciated employer shares in his 401k, the potential of NUA should be considered, which increases complexity and options even more.

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