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I'm trying to navigate the tricky waters around 401k rollovers and I am soliciting any thoughts from this forum. I have a 401k that contains co-mingled pre-tax and after-tax contributions. I also have a Roth IRA and a Traditional IRA. The Traditional IRA is largely funded with non-deductible contributions. The 401k is about 90% pre-tax contributions and 10% after-tax contributions. The 401k is roughly 10x the size of the IRAs combined. The 401k has a Roth option that I have barely used - it has a place-holder amount of around 1% of the total.

Ideally, I would like to somehow get my after-tax contributions to the 401k into a Roth or Roth 401k. In an ideal world, I would wave a magic wand and the after-tax contributions to the 401k would move to either the Roth 401k or the Roth IRA, while all the remaining assets stayed put in the 401k.

My 401k allows for in-service roll-overs.

Q1: What exactly is meant by age 59 1/2? Does this mean "6 months after your 59th birthday" or does it mean "the calendar year when you'll hit that milestone"?

Q2: Can I roll over just the after-tax contributions directly into the Roth 401k, leaving the pre-tax contributions where they are? Alternatively, can I roll over the after-tax contributions to the Roth IRA, again leaving everything else the same?

Q3: If I can't do the targeted roll-over, I believe under current law that I can roll over the entire 401k into the IRAs, splitting the assets between the Roth and Traditional IRAs such that the after-tax contributions go entirely to the Roth. Is that correct?

Q4: What does rolling the entire 401k into the IRAs do to my Roth IRA conversions? Will I be forced to use some sort of pro-rata rule, effectively losing my ability to roll over the after-tax contributions to the IRA? Is this why the normal advice is to leave 401k assets in the 401k?

Q5: Can I avoid the pro-rata problems by rolling the entire Traditional IRA to the Roth IRA before dumping the 401k into the IRAs? If so, can both activities occur in a single calendar year?

Q6: Won't having a large Traditional IRA impact my ability to fund the Roth IRA via rollovers in future years? If so, is there any way to avoid the issue?

Q7: Can I roll the Traditional IRA into the 401k? If so, can I do that even if most of what's in it originally came from the 401k as a roll-over?

I am contemplating the following steps, possibly done in separate calendar years:
1. Roll the Traditional IRA into the Roth IRA, leaving the Traditional IRA as an empty shell.
2. Roll the entire 401k into the IRAs, splitting the pre-tax and post-tax monies into Traditional and Roth.
3. Roll the Traditional IRA, now entirely consisting of pre-tax monies, back into the 401k.
Is this OK per IRS rules? Do these events have to be in separate tax years? Is there any simpler way to split the assets up while not creating a problem for myself w.r.t. future Roth contributions via the so-called "back door"?

dmcmahon wrote:My 401k allows for in-service roll-overs.

An in-service rollover generally means rolling from after-tax 401k to Roth IRA. If your 401k allows in-plan Roth rollovers that would mean rolling from after-tax 401k to Roth 401k. Does your plan allow for the second option?

What exactly is meant by age 59 1/2? Does this mean "6 months after your 59th birthday" or does it mean "the calendar year when you'll hit that milestone"?

It depends on the situation. Usually it's the second option, but sometimes it's the first. If you're planning to roll part of your 401k from your current job to an IRA it's literally means six months after your 59th birthday (although a very few companies allow it under that age limit).

Can I roll over just the after-tax contributions directly into the Roth 401k, leaving the pre-tax contributions where they are?

You mentioned above your plan allows in-service rollovers. Does it allow in-plan Roth rollovers? They're not the same thing. If it does allow in-plan Roth rollovers you should be able to roll the assets in your after-tax sub-account (contributions and earnings) into the Roth 401k. The earnings will be taxable. Any assets in your pre-tax sub-account (employee deferrals, earnings, and employer contributions) stay where they are. This type of rollover is usually not age-related.

Alternatively, can I roll over the after-tax contributions to the Roth IRA, again leaving everything else the same?

Yes. Again the earnings will be taxable. And again this type of rollover is usually not age-related.

If I can't do the targeted roll-over, I believe under current law that I can roll over the entire 401k into the IRAs, splitting the assets between the Roth and Traditional IRAs such that the after-tax contributions go entirely to the Roth. Is that correct?

You can roll employer contributions, any earnings, and after-tax amounts. You cannot roll your employee deferrals (pre-tax or Roth).

What does rolling the entire 401k into the IRAs do to my Roth IRA conversions? Will I be forced to use some sort of pro-rata rule, effectively losing my ability to roll over the after-tax contributions to the IRA?

Assets rolled to TIRAs will mess up the backdoor Roth IRA method because of the pro-rata rule. Assets rolled directly to Roth IRAs will not be a problem.

Is this why the normal advice is to leave 401k assets in the 401k?

Yes.

Can I avoid the pro-rata problems by rolling the entire Traditional IRA to the Roth IRA before dumping the 401k into the IRAs? If so, can both activities occur in a single calendar year?

The pro-rata rule is triggered by what's in non-Roth IRAs as of December 31st. If you roll pre-tax 401k assets to a TIRA, leave them there, and attempt the backdoor Roth IRA method you will be paying taxes on a large portion of that backdoor conversion in addition to paying taxes on the normal TIRA to Roth IRA conversion.

Won't having a large Traditional IRA impact my ability to fund the Roth IRA via rollovers in future years? If so, is there any way to avoid the issue?

It depends on what you mean by "fund the Roth IRA via rollovers". If you are not contributing to a Roth IRA via the backdoor method (TIRA to Roth IRA) but only by rolling after-tax 401k assets directly to the Roth IRA, assets in the TIRA will not get in the way. That's because you're not going through a TIRA and not filing Form 8606.

Can I roll the Traditional IRA into the 401k?

You can if the 401k plan will allow it. Not all do.

If so, can I do that even if most of what's in it originally came from the 401k as a roll-over?

Probably, it depends on the 401k plan.

I am contemplating the following steps, possibly done in separate calendar years:
1. Roll the Traditional IRA into the Roth IRA, leaving the Traditional IRA as an empty shell.
2. Roll the entire 401k into the IRAs, splitting the pre-tax and post-tax monies into Traditional and Roth.
3. Roll the Traditional IRA, now entirely consisting of pre-tax monies, back into the 401k.
Is this OK per IRS rules? Do these events have to be in separate tax years? Is there any simpler way to split the assets up while not creating a problem for myself w.r.t. future Roth contributions via the so-called "back door"?

If your 401k plan allows incoming rollovers from TIRAs you could roll the pre-tax portion of your TIRA into the pre-tax sub-account of your 401k. Any non-deductible basis in the TIRA would not be rolled and would be converted to the Roth IRA. Then roll the after-tax 401k sub-account assets into the Roth IRA. You'd have to pay taxes on the after-tax earnings.

I found at least a partial answer from the IRS:

https://www.irs.gov/retirement-plans/ro ... ment-plans

This implies that when you take money from the 401k to the IRAs, you have to take a pro-rate share from pre-tax and after-tax monies, but you can route the funds separately to the Roth IRA and Traditional IRA. So that explains why you need to take out 100% of the 401k if you want to put 100% of your after-tax monies into the Roth.

I take your point about the effect of doing something like this on any future backdoor Roth contributions, though. Dumping a large amount of money from the 401k into the Traditional IRA will mean that, in future, any non-deductible contributions to it will become co-mingled with the pre-tax monies, and then greatly limit the ability to roll such non-deductible contributions into the Roth. And certainly, the roll-over from the Traditional IRA to the Roth of any existing non-deductible contributions would need to be done first.

Update: this chart shows that the IRA money can be moved back to the 401k (after at least a year), but Roth IRA money cannot:

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

dmcmahon wrote:I found at least a partial answer from the IRS:

https://www.irs.gov/retirement-plans/ro ... ment-plans

This implies that when you take money from the 401k to the IRAs, you have to take a pro-rate share from pre-tax and after-tax monies, but you can route the funds separately to the Roth IRA and Traditional IRA. So that explains why you need to take out 100% of the 401k if you want to put 100% of your after-tax monies into the Roth.

The linked page was not well written. Most employer plans have sub-accounts. In that case, any distributions (rollovers) from the after-tax sub-account will not affect the pre-tax sub-account or the Roth sub-account. But when rolling the after-tax amounts you can't just roll the contributions, you also have to roll their earnings.

There are many people on this forum who have an after-tax sub-account in the employer plan and are able to roll only that sub-account to the Roth IRA.

Update: this chart shows that the IRA money can be moved back to the 401k (after at least a year), but Roth IRA money cannot:

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

There is no one-per-year limit to rollovers between 401k plans and IRAs. That only affects IRA to IRA rollovers.

Age 59-1/2, this means six months after your 59th birthday. At Megacorp, the day that was reached a new distribution option popped up on the web site.

You're essentially looking at doing the Mega Backdoor Roth. As Duckie notes, earnings must distribute with the contributions, but usually not the other pretax contributions. Plans are allowed but not required to split the rollover into pretax and after-tax amounts. That allows sending the after-tax to Roth directly without tax. If the earnings are small, sometimes it's easier to send the entire rollover to Roth and pay the tax. If you've been accumulating for years, it might be more painful.

Check your plan to see if it accepts rollovers from IRAs. You could then roll the earnings back in. It's not clear if you're doing regular backdoor Roth. If so, any pretax in TIRA causes problems.