Eligible Rollover Distributions

[joel]

Is a distribution of post-tax funds from a section 401(a) DB government plan eligible for rollover treatment to a Roth IRA?

[ETA Consulting LLC]

Sure, if it is otherwise eligible for rollover. If the distribution is part of a series of distributions over the participant's life (and other otherwise eligible for rollover) then it may not be converted to a Roth IRA. In other words, merely being post-tax doesn't prevent a rollover to a Roth IRA.

Good Luck!

[joel]

Sure, if it is otherwise eligible for rollover. If the distribution is part of a series of distributions over the participant's life (and other otherwise eligible for rollover) then it may not be converted to a Roth IRA. In other words, merely being post-tax doesn't prevent a rollover to a Roth IRA.

Good Luck!

Does the Direct Rollover option apply?

[ETA Consulting LLC]

Of course. The plan must allow any distribution that is eligible for rollover to be done directly. The plan must also allow for direct rollovers to Roth IRAs.

Good Luck!

[joel]

I would like to play devil's advocate for a moment. One of the exceptions to rollover treatment is a distribution of the participant's contributions (investment in contract)

1.402©-2 Q. 3(b) exceptions:

(3) The portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation described in section 402(e)(4)). Thus, for example, an eligible rollover distribution does not include the portion of any distribution that is excludible from gross income under section 72 as a return of the employee's investment in the contract (e.g., a return of the employee's after-tax contributions), but does include net unrealized appreciation.

The issue at hand is a distribution of the employee's after-tax contributions---so doesn't this means that the distribution is not an eligible rollover contribution?

[ETA Consulting LLC]

Many, many, many years ago (probably prior to 2001), after-tax amounts were not eligible for rollover. For the past 10-plus years, they were.

You should reference the current rules. It does become confusing sometimes when you read a rule from an old book. I failed the ASPPA C-2 DB exam back in 2002 by failing to realize the full 415 limit payout was available at age 62 (where prior to EGTRRA, the limit was required to be reduced for payouts prior to age 65). The entire exam was loaded with that question, but I studied from an old book. So, I appreciate your confusion, but you'd be better off referencing the current rules.

Good Luck!

[masteff]

http://library.clerk.house.gov/reference-files/PPL_107_016_EconomicGrowthandTaxRelief_2001.pdf

See Section 643. Generally speaking it must be done as a direct trustee-to-trustee transfer for it to be permitted (ie, a direct rollover, not an indirect rollover).

[joel]

THANK YOU TO BOTH OF YOU.

JOEL

[joel]

Is the section 402(f) notice required?

[joel]

Is the five year clock in effect regardlesss of age?

[joel]

Sure, if it is otherwise eligible for rollover. If the distribution is part of a series of distributions over the participant's life (and other otherwise eligible for rollover) then it may not be converted to a Roth IRA. In other words, merely being post-tax doesn't prevent a rollover to a Roth IRA

Good Luck!

Now, if the after-tax plan is a 401(k) it stands to reason that the after-tax portion of the distribution is eligible for rollover to a Roth IRA and the taxable portion of the distribution is eligible for rollover to a Traditional IRA. Do you agree? Thanks, Joel