After-tax dollars rolled to 401k
Client had an IRA with both pre-tax and after-tax dollars. As of 12/31/2021, the nondeductible contributions in the account totaled $21,600. In August of 2022, she rolled the pre-tax dollars to her 401k and converted the $21,600 to a Roth. Now, in April of 2023, she realized that she made 2022 nondeductible IRA contributions before she completed the conversion ($2,500 worth). So $2,500 of after-tax dollars went into her traditional 401k instead of the Roth IRA (which will cause those to get taxed twice when she later withdraws from the plan). Is there any way to fix this? Can she request the 401k roll the $2,500 (plus earnings) back to the IRA to then convert? If so, how would that be handled from a reporting perspective?
Permalink Submitted by Alan - IRA critic on Fri, 2023-03-24 15:52
There is a way, but it is so convoluted and requires both the plan administrator and the IRA custodian to understand the correction procedure and issue correct 1099R forms. Tax reporting ends up with the return not being filed consistently with the incorrect 1099R forms that are issued. Therefore, for modest amounts like this client is better off to just accept the eventual double taxation.