Rolling Taxable & Nontaxable from 401(k) to Traditional IRA & Roth IRA

Submitted by Sue Moy on Mon, 2017-11-06 02:36

My understanding is that I can do a rollover from my 401K plan (I am over 59 and a half and retired) into an IRA. Since I have both taxable and nontaxable funds in the 401K, the rollover will be prorated between both category of funds. The plan administrator will only cut one check to the receiving financial organization, commingling both funds. The receiving financial organization plans to deposit the check into the traditional IRA account, determine the nontaxable portion of the funds, based on documentation provided by the plan administrator and then move the nontaxable funds to a Roth IRA(both accounts are at the same financial organization).

Is this permissible according to Notice 2014-54 on rolling over both taxable & nontaxable 401K funds to a traditional IRA and to a Roth IRA? My plan administrator refuses to cut two checks to the financial organization, separating the two pools of funds. I don’t want to trigger any taxable events if this is done sequentially since the receiving institution is getting only one check or am I allowed some leeway in terms of timing in getting the nontaxable funds to the Roth IRA? The plan administrator is willing to send one check (of the taxable funds) to the financial organization and one check payable to me for the nontaxable funds of the distribution. I could do a rollover of those funds into a Roth IRA (within 60 days) but then I would be limited in doing a rollover for one year (or does it not count since it is a rollover from a 401(k) plan?).

Eventually I want to move all the funds out of the 401(k) and close the 401(k). Would it be better to move all of it at one time?

I do not have an existing Traditional IRA, I do have an existing Roth IRA with a different financial organization.

I would appreciate some guidance in this matter. Thank you for your assistance.



Submitted by Alan - IRA critic on Mon, 2017-11-06 03:23

  • Your plan apparently will not do a standard Notice 2014-54 split rollover. I would be somewhat concerned depending solely on the receiving custodian to properly separate the pre tax amount from the after tax amount, since any error they make will probably not be correctible. Therefore, I think it is likely to be safer to have the pre tax amount directly rolled over to your TIRA account (check made out to your TIRA custodian FBO you even though they will probably mail it to you for forwarding). Then take the after tax check payable to you personally, and endorse it over for deposit to your Roth IRA. Verify that these checks are the correct amount. These rollovers do NOT count against the one rollover limit since they are not being distributed from another IRA account.
  • Unless you have a very specific reason to not roll the entire balance over to an IRA, I would keep things simple and have the entire balance distributed as described above.
  • There should be NO withholding taken from either of the two checks. You will get a 1099R for each check since the Box 7 distribution coding will differ. Neither of these will be taxable, and your return will show the total of both checks on line 16a, 16b will be blank and “rollover” will be listed next to 16b.
  • I assume the after tax amount in your plan is not Roth 401k money, but after tax contributions made to a separate after tax sub account of the pre tax portion of your 401k.

Submitted by Sue Moy on Mon, 2017-11-06 12:38

Yes, the after tax money is not Roth 401k money.  After reading a number of the IRA Discussion Forum posts of custodian and plan administrator making numerous errors, I was concerned about the one check having both funds commingled.  Thank you so much for your prompt response.  This IRA discussion forum is so helpful.

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