Roth IRA questions

[Gumby]

Why would you want to put after tax money in a 401k?* Wouldn't you have more investment options and less problem cashing out if you just invested it on your own?

I guess if you had exactly the investments you wanted in the 401k and the fees were substantially lower than you could get on your own, it might make sense, but otherwise, I just can't see it.

[Nords]

Quote:

Originally Posted by BunsOfVeal I briefly scanned the fairmark site, but I didn't see anything about rolling over the after-tax portion of a roll-over IRA to a Roth IRA. I have some after-tax money that was rolled from a 401(k) to a roll-over IRA, and it hasn't been 60 days since I left my last job, can I roll the after-tax dollars to a Roth?

Hey, it could be worse. Very few 401(k) owners realize that they have to track the various categories of contributions (employer, employee before-tax, employee after-tax) in their 401(k)s in order to properly calculate an RMD years down the road. If you roll over that 401(k) into your existing IRA then you've added deductible (& possibly non-deductible) contributions to the stew. If you don't know the basis of all these categories then the tax software assumes the highest tax/worst-case scenario.

But you've already learned the answer. You have to roll the 401(k) into a conventional IRA and then convert that conventional IRA to a Roth. Ed Slott even suggests that you go so far as to put EACH CATEGORY of your 401(k) contributions (and their proportional gains) into separate conventional IRA accounts to "simplify" the cost-basis tracking as you pick your way through the conversions.

Ed's approach seems a little extreme to me, especially if you're not planning to have to deal with RMDs. Form 8606 tracks the basis of a conventional IRA and plugs through the process of converting to a Roth. You don't have to be a CPA or a math genius to think through the process, you just have to be able to follow the directions (or to let TurboTax do it for you).

Quote:

Originally Posted by Gumby I guess if you had exactly the investments you wanted in the 401k and the fees were substantially lower than you could get on your own, it might make sense...

Exactly. I don't know if you were around when the TSP was finally offered to the military, but we'd all love to be able to make our own after-tax contributions to gargantuan index funds with extremely low turnover and expense ratios of 5-7 basis points.