Does the recent tax law change permit the rollover of after-tax 401(k)

[Guest jpersa]

Does the recent tax law change permit the rollover of after-tax 401(k) contributions and earnings to an IRA?

[Appleby]

Yes.

[Guest jpersa]

Thanks for the response. Could you provide the citation for the section of the Act that authorizes this distribution?

[MGB]

Section 643, "Rollovers of After-Tax Contributions."

In (a), it adds statements at the end of 402©(2), which in (A) allows it to go to a qualified DC plan (which agrees to separately account for it) in a trustee-to-trustee transfer; and in (B) allows it to go to an "eligible retirement plan described in clause (i) or (ii) of paragaraph (8)(B)."

This last reference (402©(8)(B)) is referring to (i) an IRA and (ii) a 408(B) individual retirement annuity.

[Guest jpersa]

Thank you.

[Guest Russ_C_R]

This is a good thing, and I plan to take advantage of it. Now I'm wondering if the new law goes that one final step and allow the 401k after-tax dollars to separately find its way to a Roth IRA. As I understand it, distributions from a traditional IRA are normally done with taxable and nontaxable parts involved proportionally. What I'm hoping for would be an exception to that. Does the new law provide for such an exception?

Thanks.

-- Russ

[Appleby]

To the best of my knowledge this has not been addressed. Unanswered questions are " how will the taxpayer indicate on the income tax return that the amount has been converted? also, how till the taxpayer indicate that the non-taxable amount has been rolled to an IRA? I assume by filing IRA Form 8606, as is done for non-deductible contributions... but I am unsure.

In any event, I doubt you will be able to convert 'just the non-taxable portion". I assume it will be pro-rated similar to non-deductible contributions.