401k rollover with pre-tax and after-tax contributions
We have a client who left her previous job and is looking to do a rollover of her pre-tax 401k into a rollover IRA. A very small portion of the 401k is “after tax dollars” post 1987. The 401k company is suggesting two checks be sent out – one for the pre-tax rollover amount and another for the after tax contribution amount (not the earnings). They advise the after tax contribution amount can be added to a non-retirement account (brokerage, trust, TOD, etc.). They also mentioned the possibility of the after tax contribution amount being put into a Roth IRA. Do you see any issues with either of these options?
Permalink Submitted by Alan - IRA critic on Tue, 2025-03-04 10:10
No. If the after tax money will not be directly rolled to a Roth IRA by the plan, and the plan issues a check to the client, the client can do a 60 day rollover of the distribution to their Roth IRA. Of course, the pre tax amount should be distributed as a direct rollover to the IRA to avoid 20% withholding. There is no withholding on the after tax dollars.