401K rollover to Roth

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
retire14
Posts: 260
Joined: Sun Jan 04, 2015 10:27 am

401K rollover to Roth

Post by retire14 » Wed Nov 07, 2018 3:32 pm

I retired from a mega corp and still have a 401K balance in Fidelity. Based on the Fidelity website, I can add up my before and after tax balance.
I would like to rollover the after tax potion to Roth IRA. I have no idea what the contributions were, only the current balance. From the IRS website, it appears that I can only rollover to Roth the after tax CONTRIBUTIONS, not BALANCE. The current 401K balance is substantial (about 1/3 of my assets).
So my questions are:
1. DO I understand it correctly or can I roll the before tax BALANCE to regular IRA and the after tax BALANCE to Roth? I think the answer is NO since the earnings on my after tax contributions were not taxed, so it is too good to be true to be able to rollover the whole thing (contributions+earnings=current balance) to Roth

2. Assuming the answer to above is NO, what alternatives do I have to take advantage of my after tax $$ in my 401K account.

3. Please point me to a website or article where I can read further if you know of one.
Thank you as always!

User avatar
HueyLD
Posts: 6244
Joined: Mon Jan 14, 2008 10:30 am

Re: 401K rollover to Roth

Post by HueyLD » Wed Nov 07, 2018 3:59 pm

See this IRS site that should answer your questions.

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

Your situation is interesting because you don‘t know the exact amount of your after tax contribution. I think you should be able to obtain that information from either Fido or your megacorp.

And you can rollover the earnings associated with your after tax contribution to a Roth IRA but you will have to pay tax on the earnings just like a conversion.

Your better choice is to roll only the after tax contribution to a Roth IRA.

JW-Retired
Posts: 6960
Joined: Sun Dec 16, 2007 12:25 pm

Re: 401K rollover to Roth

Post by JW-Retired » Wed Nov 07, 2018 4:22 pm

retire14 wrote:
Wed Nov 07, 2018 3:32 pm
I retired from a mega corp and still have a 401K balance in Fidelity. Based on the Fidelity website, I can add up my before and after tax balance.
I would like to rollover the after tax potion to Roth IRA. I have no idea what the contributions were, only the current balance. From the IRS website, it appears that I can only rollover to Roth the after tax CONTRIBUTIONS, not BALANCE. The current 401K balance is substantial (about 1/3 of my assets).
So my questions are:
1. DO I understand it correctly or can I roll the before tax BALANCE to regular IRA and the after tax BALANCE to Roth? I think the answer is NO since the earnings on my after tax contributions were not taxed, so it is too good to be true to be able to rollover the whole thing (contributions+earnings=current balance) to Roth
I also have small portion of after tax dollars in my 401k. To clarify, it's only the amount of the original after tax contributions themselves that is an after tax portion. Their earnings are pre-tax. The 401k admin (Fidelity) is required to keep track of how much the after-tax contribution portion amounts to. I have not wanted to remove mine since I want to leave it all as part of the 401k for asset protection reasons. I could be wrong but I don't believe you can take out only the after tax contributions part and leave the pre-tax as a 401k.

However, I've read you can indeed separate it with no tax due by, as you say, rolling ..... "the before tax BALANCE to a regular IRA and the after tax BALANCE to Roth".

Suggest you talk to Fidelity. Also, someone here who has done this will probably weigh in too.
JW
ps: Yep, the HueyLD link has it! :beer
Last edited by JW-Retired on Wed Nov 07, 2018 4:32 pm, edited 2 times in total.
Retired at Last

retiredjg
Posts: 34225
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401K rollover to Roth

Post by retiredjg » Wed Nov 07, 2018 4:24 pm

retire14 wrote:
Wed Nov 07, 2018 3:32 pm
I retired from a mega corp and still have a 401K balance in Fidelity. Based on the Fidelity website, I can add up my before and after tax balance.
I would like to rollover the after tax potion to Roth IRA. I have no idea what the contributions were, only the current balance. From the IRS website, it appears that I can only rollover to Roth the after tax CONTRIBUTIONS, not BALANCE. The current 401K balance is substantial (about 1/3 of my assets).
This
So my questions are:
1. DO I understand it correctly or can I roll the before tax BALANCE to regular IRA and the after tax BALANCE to Roth? I think the answer is NO since the earnings on my after tax contributions were not taxed, so it is too good to be true to be able to rollover the whole thing (contributions+earnings=current balance) to Roth

2. Assuming the answer to above is NO, what alternatives do I have to take advantage of my after tax $$ in my 401K account.

3. Please point me to a website or article where I can read further if you know of one.
Thank you as always!
It is unclear if you are talking about Roth 401k or an after-tax separate account in a 401k. Even though Roth 401k is after tax, it is not the same thing as an after-tax account and the treatment of the earnings is different.

User avatar
HueyLD
Posts: 6244
Joined: Mon Jan 14, 2008 10:30 am

Re: 401K rollover to Roth

Post by HueyLD » Wed Nov 07, 2018 4:28 pm

The IRS link provided above has guidance on how to separate the pretax and after tax amounts in a traditional 401(k). The OP should read it carefully.

For example:

“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.

Can I roll over my after-tax contributions to a Roth IRA and the earnings on my after-tax contributions to a traditional IRA?

Yes. Earnings associated with after-tax contributions are pretax amounts in your account. Thus, after-tax contributions can be rolled over to a Roth IRA without also including earnings. Under Notice 2014-54, you may roll over pretax amounts in a distribution to a traditional IRA and, in that case, the amounts will not be included in income until distributed from the IRA.”

retiredjg
Posts: 34225
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401K rollover to Roth

Post by retiredjg » Wed Nov 07, 2018 5:01 pm

HueyLD wrote:
Wed Nov 07, 2018 4:28 pm
The IRS link provided above has guidance on how to separate the pretax and after tax amounts in a traditional 401(k). The OP should read it carefully.
Yes, but....that link applies to an after-tax account, not to a Roth 401k account. You may know the difference but many posters do not.

If this poster is actually talking about Roth 401k, following that information would be all wrong. There is something about how the original post is written that makes me wonder what this poster really is talking about.

User avatar
HueyLD
Posts: 6244
Joined: Mon Jan 14, 2008 10:30 am

Re: 401K rollover to Roth

Post by HueyLD » Wed Nov 07, 2018 5:32 pm

I bet you a dollar that the OP was describing his traditional 401(k) because all contributions to designated Roth accounts are after tax. He would not have before and after tax contributions in a designated Roth.

Only the OP can clarify this.

retire14
Posts: 260
Joined: Sun Jan 04, 2015 10:27 am

Re: 401K rollover to Roth

Post by retire14 » Wed Nov 07, 2018 6:07 pm

HueyLD wrote:
Wed Nov 07, 2018 5:32 pm
I bet you a dollar that the OP was describing his traditional 401(k) because all contributions to designated Roth accounts are after tax. He would not have before and after tax contributions in a designated Roth.

Only the OP can clarify this.
Yes. Existing 401k is traditional. I want to move the after tax portion to Roth IRA and the rest to traditional IRA. Sorry for not being clear.

retiredjg
Posts: 34225
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401K rollover to Roth

Post by retiredjg » Wed Nov 07, 2018 6:15 pm

In that case, it should look something like this if you don't want to pay any taxes.
  • Traditional 401k contributions and earnings (pre-tax) -----> tIRA
    Employer match and earnings (pre-tax) -----> tIRA
    after tax contributions ------> Roth IRA
    earnings in the after-tax account -----> tIRA
This assumes you have not contributed anything to Roth 401k or rolled anything into this plan or done any in-plan Roth rollovers.

Any or all of the above can be rolled into Roth IRA, but that will trigger taxes.

Post Reply