Rolling Over After Tax 401k Contributions

[Corporate ORphan]

I am going to roll over my 401k into an IRA, putting the after tax contributions into a Roth and the rest in a tIRA. DH when he retired in in 2006 just put all his 401k in a tIRA. Anyone know if he can put the after tax contributions into a Roth now? I found the following on the IRS site that made it sound like you could:

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Transition rules​

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Taxpayers can use the new rule for distributions on and after September 18, 2014. For distributions​

prior to September 18, 2014, taxpayers can also use the new rule, except for distributions from​

designated Roth accounts.

 

[jebmke]

I did this in December, 2013. I am (was) retired -- it wasn't an in-service rollover. The IRS permits it. The key is to find out if your 401(k) administrator can will do it.

 

[cathy63]

If he has a commingled tIRA now, with both pre- and post-tax funds in it, then it's my understanding that he cannot convert only the post-tax funds to a Roth. However much he moves will be allocated proportionally. So he would have to pay tax on whatever portion of the conversion can be attributed to pre-tax contributions and gains.

 

[Alan]

If he has a commingled tIRA now, with both pre- and post-tax funds in it, then it's my understanding that he cannot convert only the post-tax funds to a Roth. However much he moves will be allocated proportionally. So he would have to pay tax on whatever portion of the conversion can be attributed to pre-tax contributions and gains.

This is my understanding also. Even if the after tax money was in a separate IRA then converting that IRA to a ROTH would be taxed in proportion to the sum of all his IRA's.

 

[Neill]

I wanted to do this myself. There are supposed to be techniques to do this. Search for 'isolating basis'. For example:
Isolating IRA Basis - Fairmark.com Fairmark.com

You need an employee plan for this and the plan has to accept rollovers from the type of IRA you have. Mine didn't allow this.
So lots of road blocks and you will have to check if the rules have changed.

 

[Animorph]

I've started rolling DW's combined 401k/Roth 401k into a tIRA and Roth IRA. Her company/401k admin wouldn't separate the pre- and post-tax funds unless we rolled over the entire account. I didn't want to convert it all to cash in order to do that. I'm converting about 10% at a time so that the rest can stay invested.

I did my partial conversion all into a Roth IRA. That keeps the post-tax money safe, but the rest is taxable just like a tIRA to Roth IRA conversion. I'll recharacterize most or all of the taxable portion into a tIRA before tax time next year. So everything ends up in the right place, no taxes are due, and everything fits into normal procedures. That seemed much easier to do than placing it all in a tIRA and then try to recharacterize or transfer some of that into a Roth tax-free. But I haven't done the recharacterization step yet, so that part is untested. If it screws up somehow I've just done a premature Roth conversion. We're doing Roth conversions already, so no real impact there for me.

 

[jebmke]

If he has a commingled tIRA now, with both pre- and post-tax funds in it, then it's my understanding that he cannot convert only the post-tax funds to a Roth. However much he moves will be allocated proportionally. So he would have to pay tax on whatever portion of the conversion can be attributed to pre-tax contributions and gains.

I think OP is talking about a 401(k) roll, not an attempt to isolate the basis in an existing IRA.

If he has a mixed IRA (taxable and basis), the only way I know of to isolate the basis is to roll the IRA into the 401(k) and then roll the basis to a ROTH and the pre-tax to a Tira. Not all 401(k) plans will accept inbound rolls.

 

[cathy63]

I think OP is talking about a 401(k) roll, not an attempt to isolate the basis in an existing IRA.

If he has a mixed IRA (taxable and basis), the only way I know of to isolate the basis is to roll the IRA into the 401(k) and then roll the basis to a ROTH and the pre-tax to a Tira. Not all 401(k) plans will accept inbound rolls.

Could be. I assumed that this statement/question from the OP meant that the 401(k) was already rolled over years ago and now they want to separate pre- and post-tax $ that are already in a tIRA: "DH when he retired in in 2006 just put all his 401k in a tIRA. Anyone know if he can put the after tax contributions into a Roth now?"

 

[gauss]

IF DH does not have access to a 401k that accepts incoming rollovers from traditional IRAs of tax-deferred funds, then he could consider opening a Solo/Individual 401k at Fidelity or ETrade for the purpose of "isolating the basis" in his IRAs as described at fairmark.com.

Technically he should be a business owner to do this, but the barriers to entry of being an ebay seller type of business should be quite low. He would not be able to make new contributions unless he has profits from the "business", but rollovers would NOT be limited by any lack of profits.

-gauss