I have read with great interest some postings on Fairmark.com regarding the feasibility of rolling over after-tax contributions to a 401k into a Roth IRA. Unfortunately, I have not been able to find much updated information on the issue. I would greatly appreciate any thoughts anyone might have on my situation.
I recently lost my job. I am 59 1/2 years of age. I had a very good final year, and with my severance and bonus should have total gross income in excess of $5000K for 2011.
I have $623K in my 401k with my ex-employer. Of that amount, $175k is from after tax contributions (and does not include gains from those contributions). Ideally, I would like to roll the $175K into a Roth IRA, and the balance into a traditional rollover IRA. Of course I would like to avoid any tax event.
As I read an article from Fairmark.com at
(originally dated March 2009, but updated in February 2011), it seems the best way to do this is to have an indirect rollover. That is, have the 401k administrator send me the money in the 401k. Then, within 60 days I first send the pre-tax amount to Vanguard for the traditional rollover IRA, and then after that has cleared, send the after-tax funds to a new Roth IRA.
(I understand the issue with the 20% withholding, but fortunately I have sufficient funds elsewhere to put the full $175k into the Roth.)
Does this process pass muster with the IRS and reflect most current tax law changes? Will my high income level prevent me from doing this during the current year? Is the somewhat convoluted method of an indirect rollover necessary?
A rollover expert at Vanguard told me that isolating the after-tax basis for conversion can be done, but that the IRS regulations are somewhat contradictory on this matter. It is possible the IRS could clarify (with negative impact) after I did such a transaction.
I very much appreciate any thoughts readers might have.