401K and Roth 401K in same account--issues?

[ulrichw]

I would venture that any legitimate 401(k) plan *does* keep these funds in separate accounts. Why? It's the law.

Here's the excerpt from 26 U.S. Code § 402A (https://www.law.cornell.edu/uscode/text/26/402A)

(2) Separate accounting required
A program shall not be treated as a qualified Roth contribution program unless the applicable retirement plan—
(A) establishes separate accounts (“designated Roth accounts”) for the designated Roth contributions of each employee and any earnings properly allocable to the contributions, and
(B) maintains separate recordkeeping with respect to each account.

In my current 401(k) account, the top-level views all show the amounts combined, but if I click down to the "vesting" view, I see the amounts broken out individually. (Note that I don't have any Roth contributions, but my after-tax contributions are treated the same way I expect Roth contributions to be treated)

 

[Huston55]

I would venture that any legitimate 401(k) plan *does* keep these funds in separate accounts. Why? It's the law.

Here's the excerpt from 26 U.S. Code § 402A (https://www.law.cornell.edu/uscode/text/26/402A)


In my current 401(k) account, the top-level views all show the amounts combined, but if I click down to the "vesting" view, I see the amounts broken out individually. (Note that I don't have any Roth contributions, but my after-tax contributions are treated the same way I expect Roth contributions to be treated)

+1...as noted in my earlier post (below).

Yea, the multi-account/multi-source thing can make reading one’s 401k statement a chore. But, one view of mine also shows all sources that are in the same fund (i.e.: S&P500, US Bonds, etc.) as a single amount; other statement views show the contribution “by source”, which is what your son’s interested in if he plans transfers to IRAs at a later date. For example, that “by source” view of my old 401k shows balances categorized like this:

-Employee Pre-Tax Contributions
-Employer Match
-Employer Profit Sharing Contributions
-Roth 401k
-Post 86 After-Tax Contributions*

*Certain 401k plans allow continued contributions beyond set annual levels (which ours did), which results in this pot of funds. Depending on the 401k’s Plan Description, these ‘contributions’ can be transferred to a Roth IRA; the associated earnings must be transferred to a TIRA; both are non-taxable events. Here’s a link explaining that.

https://money.stackexchange.com/questions/37166/roll-over-post-1986-401k-to-roth-ira

 

[RunningBum]

I too contributed to both a 401k and a Roth 401K with my prior employer. When I view my account online, both contribution types are lumped together in one total, and I've been unable to find a source breakdown online (although I may have just missed it). However, my quarterly statement always contains a breakdown of each source: 401K Deferral, Employer Match and Roth Deferral.

I had another look when I helped him with his taxes the other day. I see those same three categories which I'm pretty sure included both source and earnings. I'm not sure if this was only in a quarterly statement or available elsewhere (I think the latter). We had limited time so I didn't want to get too sidetracked on this.

I think where I got hung up was the Employee Match, trying to figure out which part matched the 401K and which the Roth 401K. I was under the impression that the match on the Roth 401K would be treated like his contributions, but as has been pointed out here, it seems that the employee match will be taxed upon withdrawal or conversion. It is essentially part of the regular 401K and not the Roth 401K.

So given that his Roth 401K contributions and earnings are broken out, or at least seemed to be--we had limited time to get things done so I didn't want to get too sidetracked--I'm a lot more confident that he shouldn't have problems properly rolling this account into regular and Roth IRAs when he leaves. I still wish there were two distinct accounts to make certain the Roth part doesn't somehow get rolled into a tIRA, but I think he understands.

2017 was a nice year for him to get that account started. I look at the amounts of his contributions, employee matches, and gains, and it's kind of chump change to me, but I forget that to him it's an impressive amount, especially the account balance compared to what he contributed. A good encouragement to continue investing!

Thanks for the help here.

 

[googily]

Sorry for piggybacking, but this thread is full of people in the know. My Megacorp just announced the addition of a Roth 401k option. I'm already maxed on 401k and catch-up contributions - is a Roth just now the equivalent of what used to be broken out as after-tax contributions? But now instead of dumping any excess monies I might want to save into my brokerage account I could put them in the Roth 401k?

 

[gauss]

When I have had earnings in my aftertax portion of the account. I have the option to pay taxes on it or leave it in the account.

If you were able to withdrawal after tax contributions and let the earnings continue to defer, it sounds like this was from pre-1987 contributions.

Post-1986 after-tax contributions are distributed on a pro-rata basis containing a proportionate amount of contributions/earnings in a 401k.

-gauss

 

[gauss]

Sorry for piggybacking, but this thread is full of people in the know. My Megacorp just announced the addition of a Roth 401k option. I'm already maxed on 401k and catch-up contributions - is a Roth just now the equivalent of what used to be broken out as after-tax contributions? But now instead of dumping any excess monies I might want to save into my brokerage account I could put them in the Roth 401k?

I don't think so.

The total amount that you can contribute to a pre-tax 401k and a Roth 401k is based on the elective deferral limit (ie ~$17,000) each year. If you do more of the Roth, you need to cut back on the pre-tax portion if you are already maxed out.

This is separate from any after-tax (non-Roth) contributions that your plan may allow for. This may allow you to save an additional $35,000 or so per year, bringing the total to ~ $55,000/year. This is what we do.

As you probably know, the beauty of the after-tax contributions is that they can be rolled over to a Roth IRA. This is a method to get a large amount of $ into a Roth IRA quickly if you have the cashflow and a company plan that will support it.

A related advantage is that all these Roth conversions from after-tax contributions can be withdrawn prior to age 59 1/2 without penalty if it has been 5 years since each conversion (see part III IRS From 8606 for details).

This way one can ER before age 59 1/2 and not have to fool around with 72(t) plans or "Rule of age 55" issues to fund themselves during the gap until age 59 1/2.

Beware that, I believe, Roth 401k distributions prior to age 59 1/2 are more restrictive than Roth IRA distributions.

-gauss

 

[googily]

Thanks so much, Gauss!

I'll have to look at it all more deeply.

 

[MarieIG]

This thread explained why my new 401(k) company wanted the date of the start of my old 401(k) Roth.