The fact that you are not sure what can be done with this money is a bit concerning. Surely the money came with some explanation of what can be done with it?
We usually talk about this in terms of in-service rollovers instead of after separation. But I don't know why that would be any different. To be sure, you might contact Alan S who seems to know a lot about IRS regs on this issue.
This is something that is available in many plans, but many folks don't seem to know it.
BachemFan wrote:Joe S.
It can be done, I did it with the guidance of Bogleheads, especially Alan S. See link below.
Thanks for the information.
I already rolled the pretax money over via a direct 401k to Vanguard transfer. Would that change anything?
I'm classified as a HCE in my mega-company's 401k plan. As such they limit me to 10% pre-tax, 2% post-tax (not Roth, but just 2% non-deductible contributions to the 401k). The plan administrator is Fidelity, and they told me that I can roll that 2% directly into an external (e.g. Vanguard) Roth IRA at any time w/o any tax consequences.
In your situation, you fall into the IRS created "ambiguous zone" with respect to isolating basis between a TIRA and a Roth IRA. This was created by Notice 2009-68. Since 2009, there have been several requests from major employee benefits firm to the IRS to clarify their intent. Nothing has been forthcoming and for 3 years now many employees have been doing twin rollovers (Pre tax to TIRA and post tax to Roth) and the plan administrators have not been directed by the IRS to change 1099R reporting, and therefore those twin rollovers are pretty secure.
The 1099R programming cycle for employer plans begins around November, so the IRS has another 10 months or so to potentially issue directives for change. For that reason, it is safer to do these rollovers after November when it's too late for the IRS to change instructions, than to do it now when the IRS has 10 months to determine what they will do for 2013. That said, there is not too much to risk even now in rolling the after tax check to your Roth IRA, with the intent to report it as a tax free Roth rollover on line 16b of your 1040. The 1099R for it will show no taxable amount in Box 2a. If the IRS rules against you in the meantime, you have until 10/2014 to recharacterize a 2013 rollover (conversion) back to a TIRA. That said, if this were to happen, then you have 8606 basis in your TIRA that can only come out pro rata, and some people would not want that compared to simply keeping the after tax amount as taxable savings.
GIven the ACA and everything else the IRS has on their table now, I would be inclined to do the rollover to the Roth IRA since the potential benefit exceeds the risks.
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