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Rolling over a 401k that includes after tax contributions
Old 03-02-2024, 11:12 AM   #1
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Rolling over a 401k that includes after tax contributions

I have a $3mm 401k that I will be rolling over to a Trad IRA in the coming months. I am over 59-1/2. Any Roth IRA that I have is only two or three years old.

My 401k has about $190K in after tax contributions. When I roll this over I can direct these after tax contributions either to my bank account or to a Roth IRA. I anticipate buying a house later this year and need access to this $190k cash.

My question is: When I do this rollover, if I put the $190k into a Roth account, can I withdraw it later in the year for the house purchase? Is there any five year limitation on this money? Or just any earnings?
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Old 03-02-2024, 12:01 PM   #2
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My (fairly uninformed) impression is that you can only take pro-rata distributions (i.e. you have to take both after-tax and pre-tax distributions in proportion). But, I'm very curious to see if anyone have a different answer.
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Old 03-02-2024, 12:20 PM   #3
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If the $190K is entirely made up of contributions, then it's still treated as contributions after the rollover. You can always take contributions out of a Roth tax free, even if the account isn't 5 years old. You'll pay income tax on the earnings if you take them out before reaching the 5 year mark, but no penalty because you're over 59 1/2.

You will track the withdrawals on Form 8606 when you file your tax return.
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Old 03-02-2024, 12:21 PM   #4
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Depending on how your 401 is handling the accounting you can direct the AT amount to a Roth and the rest to a Tira. I did this in 2013 with Fidelity. They managed our 401 and I did the whole thing in 20-30 minutes over the phone. The next year I had Vanguard pull both FIDO IRAs and then I consolidated them with existing ones eventually.
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Old 03-02-2024, 12:21 PM   #5
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After the money is in the IRAs, no pro-rata rules apply. I've never tried to withdraw from a Roth IRA soon after money's arrival from a 401k, but I can't think of any limitations on doing so.
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Old 03-02-2024, 01:43 PM   #6
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Quote:
Originally Posted by jebmke View Post
Depending on how your 401 is handling the accounting you can direct the AT amount to a Roth and the rest to a Tira. I did this in 2013 with Fidelity. They managed our 401 and I did the whole thing in 20-30 minutes over the phone. The next year I had Vanguard pull both FIDO IRAs and then I consolidated them with existing ones eventually.
That was my situation. While most of my 401k was pre-tax, there was a small piece that was after-tax contributions where I over contributed in a particular year. The 401k cut me two checks... one for the pre-tax account balance payable to my tIRA brokerage FBO pb4uski that I mailed to the brokerage as a transfer and a check for the after-tax balance.

I cashed the second check, but later found out that I could have rolled it into a Roth. Luckily, it was small and helped with cash flow in the first year of retirement.
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