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Rollover of 401K with after-tax money

I have a 401K at a former employer that contains a substantial amount of after-tax contributions.

I have received some input that I can roll this over in two parts to, in effect, put the pre-tax money (contributions + all earnings) into a TIRA and the after-tax contributions in to a ROTH IRA. The advice I was given said that to do this, it would be necessary to do the rollover in two parts and the sequence was important.

First, do a partial rollover of an amount equal to the pre-tax funds to a TIRA.

Second, roll the remainder to a ROTH IRA.

According to one IRS publication (and input from one source), if a partial rollover is done, the IRS deems the money to come from pre-tax sources first. Thus, the first partial rollover deems the remainder of the funds as after-tax funds. These are then subsequently rolled to the ROTH in a separate rollover transaction.

I am interested in any opinions as to whether the above is a valid way to direct only the after-tax part to a ROTH and leave the pre-tax part in a TIRA (and continue to defer taxes).

Thanks

Reply to
Jim
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Pre-1987 after-tax contributions are allowed to be removed separate from other moneys in the plan. The plan manager would have to be keeping track of the pre-1987 after-tax moneys and also must be willing to do this for you.

Post-1986 after-tax moneys are distributed pro-rata and not separate from pre-tax moneys.

Reply to
Arthur Kamlet

You must remove the after tax money first and as a separate transaction. Whether this money can go into a Roth may depend on when you put the after tax money into the 401k.

Then you have the rest rolled into an IRA. If the after tax money in rolled into an IRA then withdrawal depends on the rules associated with Form 8606.

Reply to
Avrum Lapin

There is no pre-1987 requirement on eligible rollovers. I haven't looked, but I think Art may be thinking about some Sec. 457 rule.

If you have both pre and post-tax components in a qualified plan, the first part of any rollover is deemed to come from pre-tax contributions (the taxable part). So, if your 401K allows for it, you would rollover the amount in the 401K that is taxable to a TIRA and the remainder, which now consists of an amount equal to your post-tax contributions, should be rolled over directly (trustee to trustee) to a Roth IRA.

Reply to
Alan

That was what I thought originally but then I ran across this thread in another forum:

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It seems to imply that the rules changed in 2008.

Reply to
Jim

,

Alan, this is what I understood as well but I have not seen any type of official opinion. Do you know if there is such a thing? Would each of the 1099s have the same distribution code (I think G is the code for a rollover)?

Reply to
Jim

,

Section 643 of EGTRRA 2001 created the rollover of after-tax amounts effective 2002. If you look at IRS Pub 575 prior to 2002, there is no mention of rolling over the after-tax contributions. It first shows up in the 2002 Pub 575.

As such, I see no reason why the plan administrator should not be able to properly code the 1099-Rs to reflect a tax-free rollover for the part going to the TIRA and for the part going to the Roth IRA as long as you provide the proper instructions.

Reply to
Alan

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