401(k) with Mixed Contribution Types
I’m transferring a 401(k) into traditional and Roth IRAs. Traditional 401(k) to traditional IRA and Roth 401(k) to Roth IRA transfers are clear. My question is about after-tax contributions to the traditional 401(k). Can we have these contributions and their earnings transferred into the Roth IRA in one step, or do we need to transfer them into the traditional IRA and then do a conversion?
Permalink Submitted by Alan - IRA critic on Tue, 2021-09-14 16:15
The pre tax 401k balance should be directly rolled as a split rollover per Notice 2014-54 with the after tax contribution amount going to your Roth IRA and the rest of the balance (including earnings on the after tax contributions) to your TIRA. This split rollover must be ordered as a single request. There are no taxes due for this and this type of rollover eliminates the pro rating that would occur if the after tax balance went into the TIRA first. The Roth 401k to Roth IRA can be done at the same time, but with 3 rollovers care must be taken to make sure the instructions are clear to the plan administrator and the receiving accounts should be carefully checked right away to make sure the direct rollover were done correctly. Finally, the Roth IRA basis accounting should be updated to reflect the new regular account basis and conversion basis unless the Roth IRA is already fully qualified.