IRA with After-Tax and Pre-Tax Contributions – Okay to Transfer Out Pre-Tax to Separate IRA Account?
I have a client with a IRA that contains both After-Tax and Pre-Tax Contributions. Would it be okay/possible to transfer out the pre-tax portion of the IRA to a separate IRA account so that after the transfer one IRA account had only pre-tax contributions and the other IRA account had only after-tax contributions?
Assuming we know the total amounts contributed to the IRA, would the separation be the pro-rata ratio of after-tax and pre-tax to the current value (which includes growth)?
Thanks.
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-11 18:42
Such a transfer would not accomplish anything because all client’s IRA accounts are treated as one combined IRA for purposes of taxation of any distributions. The one situation where this might do some good is if client wanted to transfer his pre tax IRA dollars into an accepting 401k plan so he could convert the IRA basis tax free. In that case, if the IRA basis (non deductible contribution balance) was transfered to a separate IRA account, then client could simply roll the remaining pre tax balance into the 401k, then convert the other IRA account. There are no pro rations involved in the IRA transfer or in the IRA rollover to an accepting 401k.
Permalink Submitted by Tony Coppola on Thu, 2021-02-11 19:16
Thank you. That makes sense.