rollover treatment of 401k after-tax contribs

"Dick Watson" wrote in

many of these things have some dependency on the plan of the employer you are departing from the first thing to do isto read those plan documents & find out what you can & can't do beyond that, some professional tax planning would be advised ___________________________________

-----> real address on hobokeni or hobokenx

I've read the SPD until my head hurts. It has all kinds of may and might and can talk and not much must and shall and will talk.

No freebies here?

I mean it's two simple questions:

You cannot roll over after-tax 401K money into a Rollover IRA. You can roll over the pre-tax money. In 2007 there you can roll over money from one 'qualified' plan to another 'qualified' plan but not to a Rollover IRA. For more details read my blog on this subject which will be published tomorrow, Jan 14, at

The instructions for the 8606 tell you to use Line 2 to account for the basis of a rollover of already taxed contributions. You are correct that you have a choice when it comes to your cost basis in your pension. Assuming the plan allows it, you can walk away with the money that was already taxed and just rollover the untaxed amount or you can rollover the whole shebang and use the 8606 to establish your cost basis in the IRA.

Yes you can, for several years now. You then report the after-tax portion on line 2 of Form 8606 for the year of the rollover. To OP: Yes you can take the after-tax contributions without tax consequence. The 1099-R will show the nontaxable portion. Confirmation of this should be in IRS Publication

-- Phil Marti Clarksburg, MD

Thanks for the info. I couldn't find the blog entry you cite, however. Any reference citations (Pub x, page y would be great) would be gratefully appreciated.

Are you saying use the 8606 in the year OF the rollover? Or just in years of distribution?

A client called me about this January 2nd and I told him not to worry; he didn't have to get a form 8606 from IRS, that I had plenty! (grin) ChEAr$, Harlan Lunsford, EA n LA

If you change your after tax basis--e.g., you increased it with rollover money--and want the IRS to recognize your new after tax basis, report it. That's more or less what it says at the top of the instructions as to why to use the form.

To recap:

That's: One vote for call a pro. One vote for I can't roll over the after-tax contributions to the IRA (and see a blog entry on the 14th that never materialized). Two votes for a) yes I can roll over the after-tax contributions to the IRA and yes I would report it on 8606 line 2 or b) yes I can walk with it without tax consequence.

I don't know whether that's a quorum, but I hear two votes that my original conclusions I came here to confirm are correct. Thanks for the help!

The year of the rollover. It's buried in the instructions for line 2 of the 8606.

-- Phil Marti Clarksburg, MD

(1) See Section 402(a) for the rules for how the after tax (and the taxable amounts for that matter) are handled. (`2) See Section 402(c)(2) for the rule allowing the rollover of after tax amounts from employer retirement plans to IRAs. This was added in

Those are the official rules. Your understanding agrees with them.

-- Drew Edmundson, CPA Cary, NC