After-tax IRA to 401(k) then to ROTH IRA

Submitted by Karen Stay on Wed, 2020-09-30 14:59

Hi-
We have a client with an non-deductible IRA he has been contributing to. The ND IRA currently has both significant earnings and contributions. Does he have the ability to reverse roll-over his IRA to his 401(k) before year end (assuming his plan accepts them), then turn around next year and roll out the ND contribution portion to a ROTH IRA, and the gains to an IRA (again, assuming he follows the rules for this). I have been looking but can’t find an answer on this.

Thank you!



Submitted by William Tuttle on Wed, 2020-09-30 15:54

  • You are only allowed to rollover pre-tax IRA assets to a 401k.
  • To accomplish this, there is a special rule that pre-tax assets are deemed the first assets rolled over.
  • The pre-tax balance will = total balance – total non-deductible contributions,
  • Roll this amount over to the 401k.
  • Do a Roth conversion of the entire remaining balance. The only taxable amount will be any earnings between the rollover and conversion.

Submitted by David Mertz on Wed, 2020-09-30 21:55

Also, if the client has more than one traditional IRA, all of the client’s traditional IRAs are considered to be a single IRA for the purpose of determining the pre-tax amount that needs to be rolled over to the 401(k) to isolate the nondeductible contributions in the traditional IRAs.  After the rollover of the pre-tax money to the 401(k) and the Roth conversion of the remainder the client must have no funds remaining in traditional IRAs at year-end, otherwise some portion of the Roth conversion will be taxable and some amount of nondeductible contributions will remain in the traditional IRAs.

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