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).
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.