401K to IRA. After-tax contributions Issue

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Topic Author
target2030
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Joined: Sun May 04, 2014 11:55 am

401K to IRA. After-tax contributions Issue

Post by target2030 »

A few years ago I rolled over two of my 401K plans into a Rollover IRA at Fidelity. The 401K plans were also with Fidelity ,and had after-tax contributions as well.

Last year when I rolled a 401K plan into a Rollover IRA, they had me open a ROTH IRA and rolled over my after-tax contributions to a ROTH which is great.

When I called Fidelity about my old plans that I had rolled over into the Rollover IRA (first paragraph above), they still have the pre-tax and after-tax info on the 401K plans (although I am out of them completely). However, the distinction is lost in the Rollover IRA (the entire amount shows as pre-tax). I was told that I should keep track of my pre-tax and after-tax components and they asked me to see a tax advisor. This is not acceptable to me and I think that Fidelity should re-characterise the after-tax amounts and roll the after-tax from my rollover IRA into a newly created ROTH IRA. Does anybody have experience with this? Suggestions, please.
Topic Author
target2030
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Re: 401K to IRA. After-tax contributions Issue

Post by target2030 »

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placeholder
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Re: 401K to IRA. After-tax contributions Issue

Post by placeholder »

They're right you should keep track until such time as you do something with the IRA like take distributions or convert or something:
Any after-tax contributions that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Form 8606, Nondeductible IRAs, for the year of the distribution. For more information, see the Form 8606 instructions.
http://www.irs.gov/publications/p575/ar ... 1000226891
Topic Author
target2030
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Re: 401K to IRA. After-tax contributions Issue

Post by target2030 »

What is the earliest age at which you can make a withdrawal from your IRA without incurring any penalties?
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retiredjg
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Re: 401K to IRA. After-tax contributions Issue

Post by retiredjg »

If you didn't do the Form 8606 back when you were supposed to you can do it now using the information still available at Fido. It would be a very good idea to do this. If you don't, that money will be taxed a second time.

Old Forms 8606 are available on the internet and the IRS has been very gracious about accepting old Forms 8606. You don't even have to send in a return - you can send just that form alone. You probably will not get any acknowledgement that they received it, or so I've heard. Be sure to keep your Form 8606 until all the money is withdrawn from all your IRAs (except Roth).

Regarding withdrawing money from your IRA....the magic age is 59.5. There is a workaround if you need the money earlier - called Substantially Equal Periodic Payments. You would be locked into a payment system for 5 years. The money is available without penalty for several emergency/hardship reasons.
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retiredjg
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Re: 401K to IRA. After-tax contributions Issue

Post by retiredjg »

By the way, you can fix this. Convert all the basis to Roth IRA (no tax) and roll all the rest of the money into your current 401k if they accept rollovers. "All the rest" would mean all non-Roth IRAs (tIRA, SEP IRA, SIMPLE IRA).
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Re: 401K to IRA. After-tax contributions Issue

Post by placeholder »

retiredjg wrote:If you didn't do the Form 8606 back when you were supposed to you can do it now using the information still available at Fido.
You aren't supposed to fill out 8606 when it's rolled in only when you take it out of the IRA see the reference to pub 575 above.
Alan S.
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Re: 401K to IRA. After-tax contributions Issue

Post by Alan S. »

placeholder wrote:
retiredjg wrote:If you didn't do the Form 8606 back when you were supposed to you can do it now using the information still available at Fido.
You aren't supposed to fill out 8606 when it's rolled in only when you take it out of the IRA see the reference to pub 575 above.
Actually, the IRS recommendation is pretty subtle, and it adds considerable confusion. If you carefully read the following from the 8606 Inst, p 6, the additional IRA basis due to a rollover of after tax contributions from a qualified plan, you should first report that basis on line 2 when you make a non deductible contribution if that contribution is made before you take a distribution. To cut through all this verbiage, you report it the next time an 8606 would OTHERWISE be required, which might be before you take a distribution:
However, if you are required to file this year, you may need to enter an amount other than -0- or adjust the amount from the chart if your basis changed because of any of the following.You had a return of excess traditional IRA contributions (see Return of Excess Traditional IRA Contributions, earlier).Incident to divorce, you transferred or received part or all of a traditional IRA (see the last bulleted item under Line 7, later).You rolled over any nontaxable portion of your qualified retirement plan to a traditional or SEP IRA that was not previously reported on Form 8606, line 2. Include the nontaxable portion on line 2.
We all know how many people forget to file an 8606 when they make a simple non deductible contribution, so why does the IRS think it is useful to require people to remember they rolled over after tax contributions for many years before they report it? A former poster said he would likely forget and therefore was going to treat these rollovers just like a non deductible contribution by filing the 8606 right away and not wait. For many, that is probably not a bad idea.

***Really, this should not even happen anymore as the basis can be isolated and sent to a Roth rather than a TIRA!
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retiredjg
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Re: 401K to IRA. After-tax contributions Issue

Post by retiredjg »

placeholder wrote:
retiredjg wrote:If you didn't do the Form 8606 back when you were supposed to you can do it now using the information still available at Fido.
You aren't supposed to fill out 8606 when it's rolled in only when you take it out of the IRA see the reference to pub 575 above.
Yes, I see that I read it too quickly. :oops:

As Alan said, however, it is ridiculous to think people will remember to do this many many years later. Even if you don't send it in to the IRS, I think it would be wise to keep this on a Form 8606 at home.

It seems to me that the IRS has sort of dropped the ball on this one.
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