Where to roll over Roth 401k to

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sir_throckmorton
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Joined: Tue Dec 26, 2017 11:04 pm

Where to roll over Roth 401k to

Post by sir_throckmorton » Thu Jun 14, 2018 8:01 am

My wife is leaving her job to stay at home with our son. I am trying to figure out what we should do with her Roth 401k. The current balances are as follows:
- Employee 401k pre-tax: $16,500
- Employer match: $12,500
- Special company contribution: $1,500
- Employee rollover: $20,000
- Roth 401k rollover: $8,500
- Roth after-tax account: $34,000
Total balance: $93,000

Initially, I wanted to roll over the after-tax portions to a Roth IRA and leave the rest in there for the time being. However, according to the IRS web site, you cannot do that. Even if you do a partial distribution, it must include some pre- and post-tax money. The investment options in her plan are relatively slim. We currently have her 100% in the Vanguard 2050 Target Date fund, which has an ER of 0.15%. I'm sure there are inherent plan fees on top of that, but I'm not sure exactly what the fees are.

I don't want to roll over to a tIRA because we'll be doing a backdoor Roth IRA starting next year. Do you think we could open up a solo-401k for her and roll over the pre-tax portions to that and the post-tax portions to a Roth IRA? She currently doesn't have a business, but my understanding is it's rather easy to "start a business," such as filling out a few surveys online, babysitting, etc (per WCI).

Anyone have other thoughts? I've considered leaving it all in there as she could potentially decide to work again in a year or so, probably with a different company. However, I'd like to give ourselves more investment options and get those fees down some.

bloom2708
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Re: Where to roll over Roth 401k to

Post by bloom2708 » Thu Jun 14, 2018 11:16 am

With the information provided, leave it where it is.

401k to next 401k is the best option if she returns to work and has a 401k that allow roll-ins.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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Earl Lemongrab
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Re: Where to roll over Roth 401k to

Post by Earl Lemongrab » Thu Jun 14, 2018 12:28 pm

sir_throckmorton wrote:
Thu Jun 14, 2018 8:01 am
Initially, I wanted to roll over the after-tax portions to a Roth IRA and leave the rest in there for the time being. However, according to the IRS web site, you cannot do that. Even if you do a partial distribution, it must include some pre- and post-tax money. The investment options in her plan are relatively slim. We currently have her 100% in the Vanguard 2050 Target Date fund, which has an ER of 0.15%. I'm sure there are inherent plan fees on top of that, but I'm not sure exactly what the fees are.
Could you provide a link to the specific IRS information?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

sir_throckmorton
Posts: 13
Joined: Tue Dec 26, 2017 11:04 pm

Re: Where to roll over Roth 401k to

Post by sir_throckmorton » Thu Jun 14, 2018 5:14 pm

https://www.irs.gov/retirement-plans/ro ... ment-plans
Can I roll over just the after-tax amounts in my retirement plan to a Roth IRA and leave the remainder in the plan?

No, you can’t take a distribution of only the after-tax amounts and leave the rest in the plan. Any partial distribution from the plan must include some of the pretax amounts. Notice 2014-54 doesn’t change the requirement that each plan distribution must include a proportional share of the pretax and after-tax amounts in the account. To roll over all of your after-tax contributions to a Roth IRA, you could take a full distribution (all pretax and after-tax amounts), and directly roll over:

- pretax amounts to a traditional IRA or another eligible retirement plan, and
- after-tax amounts to a Roth IRA.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Where to roll over Roth 401k to

Post by Spirit Rider » Thu Jun 14, 2018 8:20 pm

sir_throckmorton wrote:
Thu Jun 14, 2018 8:01 am
  • Traditional 401k account
    • Employee 401k pre-tax: $16,500 Employee elective deferrals
    • Employer match: $12,500 Employer match
    • Special company contribution: $1,500 Could be PS contribution, QNEC or forfeitures
    • Employee rollover: $20,000 Pre-tax rollover contributions from another 401k, 403b, 457b, traditional, SEP or SIMPLE IRA
  • Designated Roth 401k account
    • Roth 401k rollover: $8,500 Roth rollover contributions from another 401k, 403b, 457b
    • Roth after-tax account: $34,000 *These are either employee designated Roth contributions or In-plan Roth Rollovers (IRR) from an after-tax account
Your wife only has two account types in this 401k. She has a traditional 401k account and a designated Roth 401k account. Everything else is "source" information that the IRS requires. I have listed the likely source information for these accounts.

*I can not tell what the source information is for the so called "Roth after-tax account". They may be referring to an IRR from an after-tax account. However, some plans have a bad habit of referring to Roth accounts as "after-tax" accounts. This is not inaccurate, but confuses the issue with true employee after-tax accounts. This is why I always prefer the term post-tax when referring to Roth 401k accounts. You should be able to clear this up by context. Either your wife just made employee elective contributions to a designated Roth account or she made employee after-tax contributions to an employee after-tax account.

This is causing you to confuse this so-called Roth after-tax account with the requirements for employee after-tax contributions and and any pre-tax earnings to an employee after-tax account. That is what is being referred to in your link. Because this account can contain both after-tax and pre-tax balances. You must distribute proportionally.

It has nothing to do with with your wife's accounts. She has a pre-tax traditional 401k account. Regardless of the source, there are only pre-tax contributions and earnings in this account. She has a post-tax Roth designated 401k account. Regardless of the source, there are only designated Roth contributions and earnings in this account. Even if the source of this had pre-tax earnings, they would have been converted and taxes paid, leaving only post-tax assets.

The restrictions on distributions of pre-tax and post-tax/after-tax only apply within an account. The IRS does not require any pro-rated distributions of pre-tax traditional 401k accounts and post-tax designated Roth accounts. However, this may be a distinction without a difference. A plan may require (and some do) either a pro-rated distribution from both accounts or not allow partial withdrawals at all. You will have to talk to her 401k plan administrator if distributions from only the designated Roth account is allowed.

sir_throckmorton
Posts: 13
Joined: Tue Dec 26, 2017 11:04 pm

Re: Where to roll over Roth 401k to

Post by sir_throckmorton » Thu Jun 14, 2018 8:22 pm

bloom2708 wrote:
Thu Jun 14, 2018 11:16 am
With the information provided, leave it where it is.

401k to next 401k is the best option if she returns to work and has a 401k that allow roll-ins.
If she decides she doesn't want to go back to work, is a solo 401k a legitimate option? Move the post-tax dollars into a Roth IRA and the pre-tax dollars into a solo 401k? She may end up nannying on the side, which I think would qualify her to open one.

sir_throckmorton
Posts: 13
Joined: Tue Dec 26, 2017 11:04 pm

Re: Where to roll over Roth 401k to

Post by sir_throckmorton » Thu Jun 14, 2018 8:37 pm

Spirit Rider wrote:
Thu Jun 14, 2018 8:20 pm
sir_throckmorton wrote:
Thu Jun 14, 2018 8:01 am
  • Traditional 401k account
    • Employee 401k pre-tax: $16,500 Employee elective deferrals
    • Employer match: $12,500 Employer match
    • Special company contribution: $1,500 Could be PS contribution, QNEC or forfeitures
    • Employee rollover: $20,000 Pre-tax rollover contributions from another 401k, 403b, 457b, traditional, SEP or SIMPLE IRA
  • Designated Roth 401k account
    • Roth 401k rollover: $8,500 Roth rollover contributions from another 401k, 403b, 457b
    • Roth after-tax account: $34,000 *These are either employee designated Roth contributions or In-plan Roth Rollovers (IRR) from an after-tax account
Your wife only has two account types in this 401k. She has a traditional 401k account and a designated Roth 401k account. Everything else is "source" information that the IRS requires. I have listed the likely source information for these accounts.

*I can not tell what the source information is for the so called "Roth after-tax account". They may be referring to an IRR from an after-tax account. However, some plans have a bad habit of referring to Roth accounts as "after-tax" accounts. This is not inaccurate, but confuses the issue with true employee after-tax accounts. This is why I always prefer the term post-tax when referring to Roth 401k accounts. You should be able to clear this up by context. Either your wife just made employee elective contributions to a designated Roth account or she made employee after-tax contributions to an employee after-tax account.

This is causing you to confuse this so-called Roth after-tax account with the requirements for employee after-tax contributions and and any pre-tax earnings to an employee after-tax account. That is what is being referred to in your link. Because this account can contain both after-tax and pre-tax balances. You must distribute proportionally.

It has nothing to do with with your wife's accounts. She has a pre-tax traditional 401k account. Regardless of the source, there are only pre-tax contributions and earnings in this account. She has a post-tax Roth designated 401k account. Regardless of the source, there are only designated Roth contributions and earnings in this account. Even if the source of this had pre-tax earnings, they would have been converted and taxes paid, leaving only post-tax assets.

The restrictions on distributions of pre-tax and post-tax/after-tax only apply within an account. The IRS does not require any pro-rated distributions of pre-tax traditional 401k accounts and post-tax designated Roth accounts. However, this may be a distinction without a difference. A plan may require (and some do) either a pro-rated distribution from both accounts or not allow partial withdrawals at all. You will have to talk to her 401k plan administrator if distributions from only the designated Roth account is allowed.
I dug into her account a little further. There was a page that listed her "pre-tax" balance at $50,000 and her "post-tax (Roth)" balance at $42,500. So you have it categorized correctly in that the top four you indicated are in fact all pre-tax traditional 401k funds while the bottom two are post-tax funds. The $8,500 rollover was from her account at her previous employer.

We will have to talk to the administrator as your mentioned to figure out what the plan allows. Although, the IRS web page I linked above does give me some pause as they make it sound like I can't just pull out the post-tax balance and rollover to a Roth IRA. I could potentially move the pre-tax dollars to a solo 401k and the post-tax dollars to a Roth IRA from my understanding, but wasn't sure what the general consensus was if this was a good idea or not.

Spirit Rider
Posts: 9185
Joined: Fri Mar 02, 2007 2:39 pm

Re: Where to roll over Roth 401k to

Post by Spirit Rider » Thu Jun 14, 2018 11:10 pm

sir_throckmorton wrote:
Thu Jun 14, 2018 8:37 pm
Although, the IRS web page I linked above does give me some pause as they make it sound like I can't just pull out the post-tax balance and rollover to a Roth IRA.
Notice 2014-54 doesn’t change the requirement that each plan distribution must include a proportional share of the pretax and after-tax amounts in the account.
As I already pointed out. That quote from the link is referring to after-tax contributions and pre-tax earnings in a single after-tax account. It is not applicable to other accounts in the plan such as the pre-tax assets in a traditional 401k account and post-tax assets in a designated Roth 401k account.

Darth Xanadu
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Location: Middle Earth

Re: Where to roll over Roth 401k to

Post by Darth Xanadu » Thu Jun 14, 2018 11:27 pm

Spirit Rider wrote:
Thu Jun 14, 2018 11:10 pm
sir_throckmorton wrote:
Thu Jun 14, 2018 8:37 pm
Although, the IRS web page I linked above does give me some pause as they make it sound like I can't just pull out the post-tax balance and rollover to a Roth IRA.
Notice 2014-54 doesn’t change the requirement that each plan distribution must include a proportional share of the pretax and after-tax amounts in the account.
As I already pointed out. That quote from the link is referring to after-tax contributions and pre-tax earnings in a single after-tax account. It is not applicable to other accounts in the plan such as the pre-tax assets in a traditional 401k account and post-tax assets in a designated Roth 401k account.
Thank you Spirit Rider for your detailed explanations. I'm not the OP but I'm in a similar boat.
"A courageous teacher, failure is."

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