The pro-rata rule dictates that when an IRA contains both non-deductible (after-tax) and deductible (pre-tax) funds, then each dollar withdrawn (or converted) from the IRA will contain a percentage of tax-free and taxable funds based on the ratio of after-tax funds vs. the entire balance in all your IRAs. When there is a mix of pre- and after-tax dollars, you cannot withdraw (or convert) just the non-deductible funds and pay no tax.
I am over age 59½ and have had a Roth IRA account for more than 5 years. Starting in 2025, I designated all of my contributions into my employer’s 401(k) plan as Roth contributions. If I decide to retire before I have met the 5-year requirement for the Roth 401(k) and roll over this balance to my existing Roth IRA account, which 5-year clock applies to those former Roth 401(k) dollars?
If you’re in a 457(b) plan and are nearing retirement, you may want to consider an often-overlooked rule that could allow you to defer twice the usual annual elective deferral limit (for 2025, $23,000 x 2 = $47,000) in the three years before retirement.
The year 2025 has been a turbulent time for the economy. Whether due to job loss or persons seeking better investment opportunities in volatile markets, retirement account funds are on the move more than ever. Fortunately, portability between different types of retirement accounts has expanded, creating more options for those relocating their money.
Like Neapolitan ice cream, most company retirement savings plans come in three flavors:401(k) plans if you work for a for-profit company or you’re a business owner with no employees;403(b) plans if you work for a tax-exempt employer, a public school or a church; and457(b) plans if you work for a state or local government.
Many retirement plans base employer contributions on employee compensation. For many years, Congress has limited the compensation that can be taken into account for those contributions. Fortunately, this dollar limit only applies to very highly paid employees.
Question:Since I retired in 2020, each year I have been converting amounts from my employer plan to my Roth IRA. I will be age 73 in 2026. Can I take my required minimum distribution (RMD) amount and convert that to my Roth IRA?
The April 23, 2025, Slott Report article, "After-Tax 401(k) Contributions Shouldn't Be an Afterthought," discusses how 401(k) after-tax contributions can be moved into Roth accounts through in-plan Roth conversions, the “mega backdoor Roth IRA,” or split rollovers. This article will explain the tax implications of these strategies.
While most distributions from a Traditional IRA are taxable, sometimes distributions can include after-tax dollars. These after-tax dollars are known as “basis.” Handling and tracking basis in your Traditional IRAs can be challenging, but it is important to get it right. If mistakes are made, double taxation can occur. That is a result no IRA owner wants.
With the popularity of Roth 401(k) contributions, after-tax (non-Roth) employee contributions have gotten short shrift. But, if your plan offers them, after-tax contributions are worth considering. They can significantly boost your retirement savings and can sometimes be funneled into Roth accounts while you’re still working.
