401(a) after tax contribution
Hello. I had a client that worked for a local, non-profit hospital system. He would contribute the maximum to his 401(a) and 403(b). On his 6/30/2025 statement it showed after-tax contributions of $64,000. What I think was happening was he was contributing over the limit and the extra went in after-tax.
He recently retired and I assisted him in rolling over both his pre-tax and after-tax contributions so I opened both a Traditional and Roth IRA. They sent me a check for the pre-tax made out to the IRA trustee, but the after-tax they sent a check to him. He in turn endorsed over to me to deposit into his Roth IRA. However, the check he received for the after-tax Roth portion was only $45,000, or $19,000 less than the statement. When he inquired to the 401(a) company managing the plan for the $19,000 difference, this is the answer they provided. “They said that $64K is considered Roth and any portion that wasn’t in there for 5 years would roll back over to a taxable category and that would account for the difference.” Could you possibly explain this? Is my client going to have to pay taxes on that $19,000 twice? If so, is there any way I can fix this like doing a Roth IRA conversion for $19,000? I’ve never come across this in all my years and I’m stumped. Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2025-09-19 18:58
What they are saying does not appear to square with the 6/30/25 statement. The statement should clearly indicate a Roth balance if there was a Roth balance. If the statement only shows “after tax”, that’s meant to be non Roth after tax contributions. Beyond that, the explanation makes no sense either and whether the Roth account has been held 5 years is immaterial.
Client needs to contact the plan administrator and hopefully get a different explanation. Some plans still cut a check for non Roth after tax contributions to the participant but would only include Roth money if the client asked for a Roth distribution that was not a direct rollover.
Elective deferrals are capped at the 402g limit over both plans, so if that limit was exceeded the excess would either be returned to client or treated as non Roth after tax contributions. The excess cannot be treated as Roth deferrals because Roth deferrals are subject to the same limit as pre tax deferrals.
The worst thing that could happen here is for any Roth balance to end up in the TIRA as that would be a disallowed rollover and an excess TIRA contribution. If any non Roth after tax money went into the TIRA, that’s legal but it’s still costly because it will add basis to the TIRA (Form 8606), and is tax inefficient.
In short, there could be more than one explanation for this situation, but the explanation the plan gave makes no sense whatever. It would help if you could see that June statement to determine if the after tax is Roth or not.