Rolling over after tax contributions from 401k

[Stwicky]

I have a large 401k balance that I kept at my final employer for the last few years (since retirement). About 15% of that is after tax contributions to that 401k. All of these after tax contributions are in a traditional 401k (non-roth).


At this point, I want to roll that over into an IRA to give me better investment options.


I'm confused about whether the pro-rata rule applies here. What are my options regarding the after tax portion of these 401k contributions? What are the tax implications?


Is there any way to withdraw these after tax contributions without penalty? I'm 58.

 

[Big_Hitter]

Here is a salient revenue notice. I'd recommend contacting the plan administrator as a first step. Just to clarify, these are non-Roth, after-tax contributions, correct?

"This notice provides rules for allocating pretax and after-tax amounts among disbursements that are made to multiple destinations from a qualified plan described in § 401(a) of the Internal Revenue Code."

https://www.irs.gov/pub/irs-drop/n-14-54.pdf

Here is the IRS page on rollover of after-tax distributions https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans

 

[jebmke]

I have a large 401k balance that I kept at my final employer for the last few years (since retirement). About 15% of that is after tax contributions to that 401k.


At this point, I want to roll that over into an IRA to give me better investment options.


I'm confused about whether the pro-rata rule applies here. What are my options regarding the after tax portion of these 401k contributions? What are the tax implications?


Is there any way to withdraw these after tax contributions without penalty? I'm 58.

I was able to roll my AT piece to a Roth IRA and the rest to a TRaditional IRA. It may depend on how the custodian is accounting for your separate accounts with in the 401(k).

 

[MarieIG]

Most likely, depending on the size of the 401k, if that is what you want, you should be able to roll over the only Roth portion of your 401k.

You could do this by contacting a brokerage and requesting that they set up a Roth for you if you don't have one already, or request that they pull the funds directly out of your 401k - via a custodian to custodian transfer. If you have only Roth IRAs (leaving the traditional behind) there are no pro rata issues.

Even if you roll over the whole account - the traditional 401k should go into a traditional IRA - and the Roth should go into a Roth. There should be no taxes as a result of a rollover - which is not a distribution.

If you have a mix in your IRAs, conversions would then be prorata.

Distributions are a taxable event - and converting traditional to Roth is a taxable event.

If you are continuing to work (at a new employer) you may be about to roll the traditional portion of the 401k into your new employer's 401k, if you like it than the old employer's 401k.

 

[Big_Hitter]

Most likely, depending on the size of the 401k, if that is what you want, you should be able to roll over the only Roth portion of your 401k.

it's likely not a Roth - I also have a non-Roth, post-86 thrift account in my 401k

those are the plans we used to contribute to after-tax when we hit the 402g limit - they are not very popular as they require annual nondiscrimination (ACP) testing

 

[jim584672]

I have a large 401k balance that I kept at my final employer for the last few years (since retirement). About 15% of that is after tax contributions to that 401k. All of these after tax contributions are in a traditional 401k (non-roth).


At this point, I want to roll that over into an IRA to give me better investment options.


I'm confused about whether the pro-rata rule applies here. What are my options regarding the after tax portion of these 401k contributions? What are the tax implications?


Is there any way to withdraw these after tax contributions without penalty? I'm 58.

I had the same situation, mixed before and after tax contributions. Pro rata rules did NOT apply. I rolled the after tax contributions to a Roth IRA and before tax earnings, before tax contributions, and after tax earnings to a Traditional IRA via a Trustee to Trustee transfer.

 

[USGrant1962]

it's likely not a Roth - I also have a non-Roth, post-86 thrift account in my 401k

those are the plans we used to contribute to after-tax when we hit the 402g limit - they are not very popular as they require annual nondiscrimination (ACP) testing

Yup, I have a chunk of post-86 after tax money in my 401(k). It is annoying, sets off my OCD!

In my case, I looked at an in-plan rollover to Roth a few years ago. That maneuver would require paying tax on all the growth but not the principal. I'm still waiting for a good year tax-wise to do that.

 

[pb4uski]

I was able to roll my AT piece to a Roth IRA and the rest to a TRaditional IRA. It may depend on how the custodian is accounting for your separate accounts with in the 401(k).

While my after-tax balance wasn't very much, about $10k as I recall, I just took it in cash for spending, but I did later think that I probably couldve rolled it into my Roth... no big deal.

 

[scrabbler1]

When I left my former employer back in late 2008, I had some after-tax (401a) contributions among my large 401k. I took it out as cash, a non-taxable event. I did a direct, trustee-to-trustee transfer of the 401k's pretax contributions and earnings on both the pretax and after-tax contributions to a rollover (traditional) IRA, also a non-taxable event. I also cashed out the large amount of company stock (ESOP) sitting in the overall 401k/ESOP account, using NUA (Net Unrealized Appreciation) to reduce the tax bite, an amount I used the cashed-out 401a contributions to pay some of the taxes.

 

[Alex The Great]

It all depend on 401K plan administrator. I regularly do the rollover for after tax 401K money (non-Roth) into Roth IRA (principal) and into tIRA (earnings). I do this directly from Empower (401K) into Fidelity (IRA) by contacting Empower representative who initiate the process.
But I can do that while I'm an active employee with the company where 401K belong to. Other plans can be different.

 

[Stwicky]

It all depend on 401K plan administrator. I regularly do the rollover for after tax 401K money (non-Roth) into Roth IRA (principal) and into tIRA (earnings). I do this directly from Empower (401K) into Fidelity (IRA) by contacting Empower representative who initiate the process.
But I can do that while I'm an active employee with the company where 401K belong to. Other plans can be different.

Once you roll over the after tax principal, are you at liberty to withdraw this money from the Roth IRA or is it subject to its own 5-year rule?

 

[Alex The Great]

Once you roll over the after tax principal, are you at liberty to withdraw this money from the Roth IRA or is it subject to its own 5-year rule?

My understanding is that principal contributed or rolled over into Roth IRA is always available tax and penalty free, correct?
However my goal here is definitely not to withdraw the money right away.

 

[NgineER]

Once you roll over the after tax principal, are you at liberty to withdraw this money from the Roth IRA or is it subject to its own 5-year rule?

My 401(k) provider stated that the After tax contributions were always available for withdrawal tax free.
Like others I always rolled those contributions over immediately so that they could grow tax free in my Roth IRA.