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Taxable 401K to Roth conversion question
Old 11-11-2015, 10:31 AM   #1
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Taxable 401K to Roth conversion question

I know we've had several Roth IRA threads lately, but my question didn't seem to fit exactly in the others so here goes:

I have a 401K at work consisting mostly of tax deferred money, but a few 10's of $K were after tax contributions. I know that after retirement I can roll the whole 401K over with the taxable portion going into a Roth and the tax deferred into a t-IRA.

My question is whether there is any way to put the taxable component into a Roth while leaving the tax deferred in the 401K. The 401K has a nice stable value fund option that I can't really replicate in a t-IRA. Is there some process I can undertake while still employed (i.e. sometime in the next 6 weeks) to separate out the taxable component so that I can convert it to a Roth without dragging the whole rest of the 401K along for the ride?

Thanks.
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Old 11-11-2015, 10:46 AM   #2
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Can I roll over just the after-tax amounts in my retirement plan to a Roth IRA and leave the remainder in the plan?

No, you can’t take a distribution of only the after-tax amounts and leave the rest in the plan. Any partial distribution from the plan must include some of the pretax amounts. Notice 2014-54 doesn’t change the requirement that each plan distribution must include a proportional share of the pretax and after-tax amounts in the account. To roll over all of your after-tax contributions to a Roth IRA, you could take a full distribution (all pretax and after-tax amounts), and directly roll over:
* pretax amounts to a traditional IRA or another eligible retirement plan, and
* after-tax amounts to a Roth IRA.
https://www.irs.gov/Retirement-Plans...tirement-Plans
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Old 11-11-2015, 12:04 PM   #3
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I transfer my after tax 401(k) contributions to a Roth IRA on a monthly basis. When I elect to do a roll over, only the Roth 401(k) or After Tax 401(k) contributions are eligible for a roll over. All tax deferred are locked up with the plan provider, and I think that is how most employers do it... Check it out on your plan website.
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Old 11-11-2015, 12:32 PM   #4
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DW's 401k has a Roth 401k component to which she contributed. However, the tracking of what's in which is nonexistent, other than the totals. I was told I had to rollover everything in order to separate out the pre- and post-tax amounts. Not knowing what the Roth money was invested in was a big reason for rolling over to an IRA.

I'm currently doing partial rollovers to IRA's. I've done three this year since I must have 90 days between them. I get to choose the rollover amount and the account it goes to. The first one they said had $600 or so of Roth 401k dollars in it. The next two had $0 of the Roth money in them. There's still $30k of Roth money left in there somewhere. I guess when I finally sell the right shares and rollover that cash the Roth money will finally show up.

I've been rolling into a Roth IRA, sort of a conventional Roth conversion. I'll recharacterize the pre-tax money into a tIRA near tax time next year. That seemed safer than rolling post-tax money into a tIRA and then begging Fidelity to move it to a Roth IRA.

Kind of convoluted, but that's all DW's 401k allows. So call your 401k and ask what they can do.
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Old 11-11-2015, 06:12 PM   #5
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Quote:
Originally Posted by stepford View Post
I have a 401K at work consisting mostly of tax deferred money, but a few 10's of $K were after tax contributions. I know that after retirement I can roll the whole 401K over with the taxable portion going into a Roth and the tax deferred into a t-IRA.

My question is whether there is any way to put the taxable component into a Roth while leaving the tax deferred in the 401K.
Thanks.

The easy way:

I believe that pre-1987 after-tax contributions have different rules that apply.

Quote:
Contributions made before 1987

Prior to the Tax Reform Act of 1986, individuals who made after-tax contributions to employer plans could generally withdraw those contributions without taking any taxable dollars from the plan. This generous rule was retained for contributions made before 1987, provided that the plan permitted in-service distributions as of May 5, 1986


The harder way:

Does your 401k accept incoming rollovers from traditional IRAs? If so, you could roll the money out, isolate your basis, then roll the taxable funds back into the 401k. Full details available at fairmark.com via searching for "isolating the basis".


Either way, you may wish to perform a small transfer/rollover first in one year and then verify when you do your taxes and receive your 1099-R's that everything worked the way you planned. That way if there is a mistake in your understanding you can correct your tactics before moving the big money.

-gauss
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