401K Rollover when Account has After-Tax Contributions also

Submitted by Paul McGillivray on Wed, 2020-11-25 16:28

I have a client and am rolling an old employer plan to an IRA. They have $23,000 in after-tax contributions in this defined contribution plan. The plan will send her a check or send the funds to a Roth account. She has an existing Roth IRA and would like to know if it is as simple as just rolling this to that account? I think that’s right. Any particular procedure required or traps to avoid? Thanks. Happy Thanksgiving to you and yours. Paul McGillivray



Submitted by Alan - IRA critic on Wed, 2020-11-25 16:38

  • In this situation, most plans will provide a split rollover (per Notice 2014-54) which sends the 23k to her Roth IRA and the much larger pre tax balance to a TIRA. No taxes would be due. It sounds like this plan may not be willing to provide more than one rollover check. Conversely, rolling the entire balance to her Roth IRA would result in the pre tax balance being taxable, so this would be a tax disaster in most cases. What is the value of the remainder of the account?  
  • If the plan will not do a split rollover, the next best option is a direct rollover of the pre tax amount to her TIRA, and a check for the 23k payable to her personally. She can then do her own 60 day rollover of the 23k to her Roth IRA. No taxes would be due.
  • I am also assuming that no part of this DC plan is in a designated Roth account now. 

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