Mega-Roth tax question - basis

[WithAPurpose]

This is such a knowledgeable forum, I bet someone here has been in my place before.


I have an amount in my 401k that is after tax contributions (after I had maxed out my Traditional/Roth limit.) 2.5% of the balance is earnings and the rest is my contributions.

I have instructed Fidelity to roll a portion out into a Roth IRA. The Fidelity Rep made clear that this would be a taxable event because the 2.5% of my 'withdrawal' was earnings. This I understand.

But I have additional (and much larger) Traditional IRAs with a very small basis and will not be converting any of those IRAs to Roth this year.

Is my Mega-Roth Rollover lumped in with (treated like) my traditional -to-Roth conversions, thus affecting the 'basis' of my Mega-Roth?

What tax paperwork will I receive from Fidelity? And won't it look exactly like the paperwork I receive when I do a traditional-to-Roth IRA conversion?
To anyone who has encountered this situation: I'd like to hear your experience.


Thanks in advance,


WithAPurpose

 

[pjigar]

First off all, Roth IRA is a different account so it should not affect basis of any of your other transitional IRAs.

Secondly, if you want to avoid a tax event all together then there is a way. Fidelity can send you 2 separate checks for "account-to-account" transfer: First check with after-tax contributions (you deposit this to your Roth IRA) and second check for reminder which will include gains on after-tax contributions plus any transitional 401K balance if any (you deposit this to your traditional IRA account).

PS: I did such "split transfer" earlier this year going from Empower to Fidelity.

 

[bada bing]

My 401K is with Fidelity and I do mega-Roth conversions 3-4 times per year. I have 2 IRA accounts set up at Fidelity to use - a tIRA account is where I send the earnings and a Roth is where I send the basis. By sending the earnings to a tIRA, the taxes are deferred until withdrawal. The Fidelity reps I've talked to have all been knowledgeable about the conversion and can do it on line, but it does require a phone call.

You don't have to convert the after-tax earnings to Roth and pay taxes now. You have the option to put them in a tIRA to defer taxes. At least my 401K at Fidelity allows it.

 

[eroscott]

My 401K is with Fidelity and I do mega-Roth conversions 3-4 times per year. I have 2 IRA accounts set up at Fidelity to use - a tIRA account is where I send the earnings and a Roth is where I send the basis. By sending the earnings to a tIRA, the taxes are deferred until withdrawal. The Fidelity reps I've talked to have all been knowledgeable about the conversion and can do it on line, but it does require a phone call.

You don't have to convert the after-tax earnings to Roth and pay taxes now. You have the option to put them in a tIRA to defer taxes. At least my 401K at Fidelity allows it.

I've done this '2014-54' several times as well exactly as you have described (2 accts). I have always had to take to Fidelity on the phone to do it.