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Rollover of After-Tax money from a 401K to an IRA

You cannot rollover after-tax money from a 401K to an IRA.

An IRA is not the same thing as a Qualified Plan. A qualified plan is established by an employer to provide retirement benefits for employees and their beneficiaries. Unlike SEP and SIMPLE IRAs. A qualified plan is not IRA based nor subject to the same rules concerning contributions and distributions. A business may chose either a Qualified OR an IRA-based plan, but an IRA and a Qualified Plan are not the same thing, and some of the rules affecting them are different.. What's a rollover? Rollover means to move money from a qualified retirement plan such as a 401(k), 403b or 457 Planinto an IRA. If you receive a payout from your company-sponsored retirement plan, a rollover IRA could be to your advantage. You will continue to receive the tax-deferred status of your retirement savings and will avoid penalties and taxes. After December 31, 2006 you can roll over both pre-tax and after-tax contributions from one qualified plan to another qualified plan. The rollover from one qualified plan to another must be a direct rollover and the receiving plan must separately account for the after-tax contributions and earnings. But keep in mind: an IRA is not a Qualified Plan so you cannot roll over after-tax money from a 401K or other qualified plan into a Rollover IRA

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Reply to
taxxcpa
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No matter how many times you repeat this, it remains flat out wrong. The law changed (I think effective 2005), as witnessed by the reporting instructions for such a rollover in the Form 8606 instructions.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

See Public Law 107-16 Sec. 643. It changed tax law to allow for the after-tax contributions to be rolled over.

-- Alan

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Reply to
A.G. Kalman

This is a very timely post. I was just starting to research how to report my 401K rollover to an IRA on March of 2006. My employer sent two separate payments to the IRA custodian, one for before tax and one for after tax. One poster said to use lines 15a and 15b and write 'ROLLOVER' next to it, and you say to use form 8606. IRS PUB 590 seems to support the first method, but it seems to be out of date because it refers to lines 16a and b. So I am not sure which is the correct way. Also don't I have to keep track of all of my after tax contributions so that they can be prorated into future distributions? I am now sure just where and how to report and track that.

--

-Ernie-

Reply to
Ernie Klein

Two separate actions: 1. You report the gross distribution on your tax return as pension income. You report the taxable amount of pension income as zero. You write the word Rollover on the pension line. 2. If you never want to pay tax again on the after-tax rollover you complete Part I of the Form 8606 using Line 2 to enter your cost basis. Keep a copy of the 8606 as that is your cost basis. You will never have to file another 8606 that changes the cost basis unless you either make a nondeductible IRA contribution, you once again rollover after-tax pension funds or convert all or part to a Roth IRA.

-- Alan

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Reply to
A.G. Kalman

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