NUA and in-plan conversion of “after tax” into ROTH
I am 61 years old and still work for the company. I have 401k company plan. In this plan I have stocks in ESOP, ROTH, “before tax”, and “after tax”. I would like to do in-plan conversion of after tax into ROTH now. However, my concern that if I do this in plan conversion now of my “after tax” into ROTH I would lose ability to utilize NUA for my ESOP when I retire from the company in a few years. Please let me know if this is a case or not. thank you
Permalink Submitted by Alan - IRA critic on Sat, 2018-03-31 03:36
The ESOP is a separate qualified plan from your 401k, so future potential NUA for the ESOP shares would not be affected by doing an IRR (in plan Roth rollover) now. Also, the after tax contribution balance in the pre tax account will be reduced by the IRR, but that after tax balance could not have been used to reduce the taxable cost basis of your ESOP shares due to the ESOP plan being a separate plan. Remember, if you do an IRR the earnings on the after tax contributions must also be transferred to the designated Roth and the earnings will be taxable.