AfterTax
Client just retired and is pension eligible. Part of that process resulted in them having their Pre-1987 After Tax contributions sent to them as a check. The Post 1986 after tax contributions, pre-tax contributions, and all earnings stayed in the account.
1. Can they send this to a Roth IRA tax free?
2. If they send the check directly to the institution including a letter of instruction telling them to deposit into their Roth is that still a direct rollover? Concern is check is sent to their address, made payable to the client, and then they are directing where it should go.
Permalink Submitted by Alan - IRA critic on Tue, 2019-04-02 23:50
Client should probably have done a split direct rollover directing all after tax dollars (pre or post 87) to the Roth IRA and the rest of the account to a TIRA. That could still be done with the remainder of the 401k could still be handled that way. Nonetheless, the client can still do a 60 day rollover of the pre 87 check to a Roth IRA flagged as a rollover contribution. The plan should issue a 1099R showing 0 taxable in Box 2a, as long as the plan separately accounted for the pre 87 balance and issued the check from that balance. Client then simply reports a rollover on line 4a of Form 1040. Best to NOT request another distribution this year (direct rollover OK) as that could trigger a combined 1099R and the client would then have to document that an earlier distribution included after tax funds only. That could result in a hassle.