Rolling after tax contributions

Submitted by Brian Ditton on Thu, 2017-09-21 23:00

What is the rule for rolling after tax contributions from a 401k plan to a Roth. From what I can gather, I must roll an equal amount of pre-tax contributions to an IRA in order to roll after tax to a Roth.

Example: 100k of after tax to Roth – 100k of pre-tax to an traditional IRA

Do I have this right? Thank you very much.



Submitted by Ben Meyer on Fri, 2017-09-22 00:05

  • It actually depends on whether you are making a total lump sum withdrawal or a partial withdrawal, and on the rules of the specific plan.  Assuming that there are no RMDs, or that the RMD has already been distributed for the year, for a total lump sum withdrawal you can request the plan to issue two checks.  One would be for the pre-tax amount, payable to your traditional IRA, and the other for the after-tax amount, payable to your Roth IRA.  
  • For a partial distribution that is not an RMD the plan rules will govern whether the withdrawal is taken from both pre-tax and after-tax sub-accounts, or whether an “order of depletion” rule may apply.  Please note that the after-tax sub-account refers to the voluntary after-tax sub-account of a regular non-Roth 401(k) and NOT to a designated Roth 401(k), which also contains after-tax contributions.  In the event of an “order of depletion” rule, each separate sub-account will be distributed in the order specified.  Depending on the amount of withdrawal, you may find that the whole distribution is taken from the pre-tax account.  Or, under different plan rules, it may be taken first from the after-tax account.  The rules will usually differ for current employees as distinguished from those who have previously separated and left the plan in place.  Sometimes you are also permitted to specify the desired sub-account from which the distribution is taken, especially if still employed, and also depending on your age.  You can request separate checks if it turns out that you can receive both pre-tax and after-tax funds in a partial distribution.  You should ask your plan people to clarify the specific plan rules, which are frequently complex in regard to distributions.

 

Submitted by Alan - IRA critic on Fri, 2017-09-22 00:32

That is not an IRS rule, but is a plan rule for a few plans.

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