After tax 401K rolled to Tira and Roth

[sayhey24]

Thanks to you guys I started moving after tax 401k money to a Roth last year!
Megacorp changed our 401 k from Fidelity to ML recently and after several calls I reached someone who sounded like they knew what I was talking about,when I explained I wanted to open a Roth.he claimed I could open a Tira to roll the earnings into with the principal going into a new Roth?? I had assumed I'd just get a 1099r and the $100 ( or whatever) earnings would be taxable. I explained I make too much for a IRA, he claimed it didn't matter...this was legal per Mega plan rules.
I don't want to get cross threaded with the IRS over $100

I assume I can't roll the after tax from my 401 now held at ML to Fido where my year old Roth account is, I also have a old Roth at Vanguard
I don't really care for ML

As a side note our company which was a mom and Pop for 40 years ,recently was acquired twice in a row.....now we are part of Megacorp , oh my gosh
How can people work for such brain rot factories for 30 years! This place is a walking " soup sandwich " now that they are " fixing " us. I'm glad I'm close to the finish. End of sniveling
Any help would be appreciated .

 

[jim584672]

From how I understand it the after tax 401k contributions ONLY can be rolled into the Roth, everything else would go to the tIRA. You could always do the whole thing, but then you would owe taxes on the earnings and before tax amounts. I have about 5% after tax in the 401k but I am letting it sit where it is for now.

I would make sure I didn't mix before tax and after tax in a tIRA because then you need to track pro-rata after/before withdrawals on form 8606 until forever.

 

[pb4uski]

+1 regular 401k goes into tIRA, after-tax 401k can go into Roth.

 

[sayhey24]

Thanks Jim, I had never heard of the tIRA component, I just assumed I couldn't do that per the income limits
Sounds like loopholes abound
Thanks!

 

[sayhey24]

+1 regular 401k goes into tIRA, after-tax 401k can go into Roth.

I'm still working and just talking about in service withdrawals of after tax contributions and earnings
I get one in service withdraw per qtr

 

[jim584672]

Direct withdrawal from a 401k with mixed before/after tax amounts would need to be done on a pro-rata basis. But I am not a tax expert on this.

 

[jim584672]

Thanks Jim, I had never heard of the tIRA component, I just assumed I couldn't do that per the income limits
Sounds like loopholes abound
Thanks!

Kinda don't know what you mean by income limits.

 

[DAYDREAMER]

I did the same thing rolling over 401k after tax money into a vanguard Roth. Pretty simple process to withdraw from mega corp.

Roth education please:
Currently I have Roth at vanguard. The vangaurd rep said that the rollover money will go into the same Roth that I have been contributing to with my after tax excess cash. I thought the rollover money would need to go into a separate Roth because a 5 year clock will start at the day of the rollover, and each year I do a 401k after tax rollover, the 5 year clock will begin for that years money.

Does all this happen within the same Roth? And if so, does vangaurd keep track of all these 5 year timing?

Vanguard rep was a young quick talker that wasn't understanding my question.

 

[Fedup]

One Roth account from the IRS perspective. When I first started my Roth account I put in a 5- year CD for that reason. Then I can contributing without worry. I believe you keep track of it because you can move this Roth account around.


Sent from my iPad using Early Retirement Forum

 

[pb4uski]

I'm still working and just talking about in service withdrawals of after tax contributions and earnings
I get one in service withdraw per qtr

I think it works the same whether it is an in-service withdrawal or an after separation withdrawal.... pre-tax 401k rolls into a tIRA and after-tax 401k rolls into a Roth IRA.

Who is ML?

 

[jazz4cash]

I did the same thing rolling over 401k after tax money into a vanguard Roth. Pretty simple process to withdraw from mega corp.

Roth education please:
Currently I have Roth at vanguard. The vangaurd rep said that the rollover money will go into the same Roth that I have been contributing to with my after tax excess cash. I thought the rollover money would need to go into a separate Roth because a 5 year clock will start at the day of the rollover, and each year I do a 401k after tax rollover, the 5 year clock will begin for that years money.

Does all this happen within the same Roth? And if so, does vangaurd keep track of all these 5 year timing?

Vanguard rep was a young quick talker that wasn't understanding my question.

I believe there is a single 5 yr clock for all monies going into the Roth. That is why I just opened one with a tiny contribution for 2015 and the holding period starts Jan 1, 2015 so the holding period is actually 4 yrs. The only reason I see for a 2nd Roth is if I use another institution.

 

[travelover]

Direct withdrawal from a 401k with mixed before/after tax amounts would need to be done on a pro-rata basis. But I am not a tax expert on this.

No longer true. The IRS has clarified this issue and moving after tax into a Roth and pretax into a tIRA is now allowed.

 

[sayhey24]

ML = Merrill

Merrill is saying that I can roll the " in service" withdrawal of $1,000 after tax contribution into a Roth and the $100 that it has earned while in the 401 k
Into a tira and avoid receiving a 1099r on the $100 of earned interest.

At fido I'm pretty sure it all went in the Roth and I got a 1099r

I thought you could not contribute to an tira and a 401
I better google that as I'm really lost now

Sorry I confused everyone including myself

 

[jim584672]

No longer true. The IRS has clarified this issue and moving after tax into a Roth and pretax into a tIRA is now allowed.

Agree. But direct withdrawals from mixed before/after 401ks are still pro rata.

 

[travelover]

Agree. But direct withdrawals from mixed before/after 401ks are still pro rata.

Gotcha. Missed the shift to direct withdrawal.

 

[Morgan22]

ML = Merrill

Merrill is saying that I can roll the " in service" withdrawal of $1,000 after tax contribution into a Roth and the $100 that it has earned while in the 401 k
Into a tira and avoid receiving a 1099r on the $100 of earned interest.

At fido I'm pretty sure it all went in the Roth and I got a 1099r

I thought you could not contribute to an tira and a 401
I better google that as I'm really lost now

Sorry I confused everyone including myself

Your confusing contribution with rollover. What they are proposing is correct. It is not a direct contribution. Roll over the after tax 401k contribution to a Roth. The earnings on the after tax 401k get rolled over to a roll-over IRA. There are no income limits on roll-overs.
I should add. You may not want to roll over the earnings if you are doing back door Roth contributions. The new r-IRA would trigger the pro rata rules.

 

[kaneohe]

I believe there is a single 5 yr clock for all monies going into the Roth. That is why I just opened one with a tiny contribution for 2015 and the holding period starts Jan 1, 2015 so the holding period is actually 4 yrs. The only reason I see for a 2nd Roth is if I use another institution.

For the real answers, ask at fairmark.com in the retirement sub-forum and look for an answer by Alan S. My understanding is that there are 2 types of Roth 5 yr clock. One starts at the start of your very first Roth IRA and typically is paired with the over 59.5 yrs old requirement to produce an AND gate =
if your very first Roth was opened over 5 yrs ago AND you are over 59.5 y.o.,
any withdrawal is fully qualified and free of taxes/penalties.

Another type of 5 yr clock starts when you do a Roth conversion. After that 5 yr clock times out, you can withdraw the conversion part free of taxes/penalty regardless of age (but not the earnings). I believe putting after-tax funds from a corp plan fits in this category (a "conversion" of sorts) though it would be best to get Alan S. to confirm. It is not necessary but may make it easier for some to have a second Roth to clock the time although keeping statements would accomplish the same result.

 

[travelover]

For the real answers, ask at fairmark.com in the retirement sub-forum and look for an answer by Alan S. .........

+1. Alan is very credible.

 

[panhead]

The Boglehead forum has extensive posts on this with AlanS giving lots of information, as well as other knowledgeable members.

See, for example:

https://www.bogleheads.org/forum/viewtopic.php?t=137366

https://www.bogleheads.org/forum/viewtopic.php?f=2&t=147196&p=2248129#p2248129

The short answer is that the IRS issued a clarification where after-tax contributions to a 401k held in a separate sub-account can be rolled over to a ROTH IRA directly, while the earnings on these said after-tax contributions can be rolled to a tIRA. None of this will result in a taxable event, and the pre-tax contributions and it's associated earnings are left in the original 401k plan. If your plan allows it, you can roll the tIRA back into the 401k to clear the way for a backdoor ROTH IRA. If you don't do this,, you will run afoul of the pro-rata rule.

Please see the excellent threads on Bogleheads forum.

-Pan-