Rollover from after tax 401k
I just took over a new client and need a bit of help.
He worked for a major corporation and retired from there about 10 years ago.
His qualified plan offered traditional 401k with a match and an after-tax, tax-deferred account that was not matched.
He requested distributions from both and received 2 separate checks. One for the qualified money and one for the after-tax contributions.
The advisor opened 2 IRA’s and rolled each of the monies into separate accounts. The monies were put into a VA with GMIB riders.
The client is now at RMD time.
I know the traditional IRA will be taxed at his rate current rate
How is the after-tax contributions accounted for since it was rolled into a traditional IRA.
I’m guessing there was no guidance back then about what to roll after tax monies into.
Any help would be welcome.
Permalink Submitted by Alan - IRA critic on Thu, 2019-04-25 23:56
DIrect rollovers to a Roth IRA were first available in 2008, and if the distribution was made after 2007 the after tax funds should have been rolled to the Roth IRA. Nonetheless, when they were rolled into a TIRA account, the IRS instructions are to report the additional TIRA basis on Form 8606 the next time Part I of Form 8606 would otherwise be required. The first year client takes a distribution (including a conversion) from any TIRA account, Form 8606 should be included adding the after tax amount on lines 2 and 3. Perhaps the RMD will be the first such distribution triggering Form 8606 to report the basis. All RMDs will be pro rated with the basis % of the total value of all TIRA contracts determining the non taxable portion of each RMD. If client has taken prior distributions, please advise.
Permalink Submitted by Geoffrey Kasher on Fri, 2019-04-26 10:44
Thank you. he has not taken any distributions as of yet. I appreciate your help.