Non spousal IRA

Submitted by Steve Ragla on Fri, 2024-05-10 14:28

My brother passed away in 2012 and I inherited his 401k. The administration setup a beneficiary Ira and I have been taking rmd’s ever since. At the time I questioned them about the amount of taxable and non taxable contributions in his 401k. They supposedly did the calculation and said all but $80k was taxable. I’ve recently found paperwork that states that his after tax contributions were over $200k more than they calculated. Is this fixable or do I have to continue to pay tax on the contributions that have already been taxed. Thank you!

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Permalink Submitted by Alan - IRA critic on Fri, 2024-05-10 15:27

Please clarify if you are taking distributions from the 401k or if a direct rollover was done to an inherited IRA. If the inherited 401k is still in place, the plan statement should break out the after tax amount.

The paperwork you located might have pre dated a distribution made by your brother of most of the after tax amount. His after tax 401k balance as of 12/31/1986 was eligible to be withdrawn by itself without any gains, therefore such a distribution would have been tax free. That’s a possible explanation for the 200k difference.

Have your annual 1099R forms indicated a consistent non taxable portion of your RMDs?

Permalink Submitted by Steve Ragla on Fri, 2024-05-10 16:51

His 401k was in place at his passing. I rolled it over to an inherited ira. Before I rolled it over the statement lists…after tax and company matching balances…$314,463 after-tax and $261,541 company matching….no 1099’s list non taxable amounts…so I’m guessing the $80,000 they distributed to me was the after tax contributions before earnings on that money? Thank you for your reply

Permalink Submitted by Alan - IRA critic on Fri, 2024-05-10 18:01

After a direct rollover to your inherited IRA, any after tax balance in the 401k should be reported by you on line 2 of Form 8606 filed in the year of your first inherited IRA distribution. This is totally separate from any IRAs you own. Unlike the 401k administrator who must issue an accurate 1099R reflecting after tax amounts, your IRA custodian does not know or attempt to track the after tax amount that was rolled to your IRA. They must report all IRA distributions on Form 1099R as 100% taxable (Box 2a).

Note that in Sept, 2014 the IRS issued Notice 2014-54, which allowed for split direct rollovers, which could have sent the pre tax amount to an inherited IRA and the after tax amount to an inherited Roth IRA. But you probably did the direct rollover before that.

Permalink Submitted by Steve Ragla on Fri, 2024-05-10 19:04

Alan,

Thank you very much for clarifying things for me.

Steve