I would like to double check my understanding on tax implications when I request direct rollovers from my after-tax 401K to Roth IRA.
Does the Pro Rata rule care about how much I have in my Pre-tax 401k? Or does the pro rata rule strictly applies to what is in my after-tax bucket?
For example, I have $10,000 invested in Pre-tax 401k and $5,000 invested in After-tax 401k. If there is no earnings in the after-tax 401k bucket, will the Roth IRA contribution be tax free? Or will there be a tax implication since I have $10,000 in Pre-tax 401k?
Thank you for clarification!
There is also no interaction with post-tax (Roth) contributions and post-tax (Roth) earnings unless you can and intentionally do an In-plan Roth Rollover.
However, Notice 2014-54 provides an easy solution after separation. Just request that all pre tax dollars in the entire plan be directly rolled to a TIRA and all after tax amounts be rolled to a Roth IRA. This avoids the unpleasant surprise where you think that only a small amount of pre tax dollars are going to the Roth and the 1099R indicates that a large portion went there. Therefore, use 2014-54 if there is any doubt about plan accounting either recognizing the continued sub account treatment or accepting a request regarding the sub account only.
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