Corrective process for IRA after-tax basis rolled into 401k?

[jimjo]

What is the corrective procedure when for when someone did a direct rollover of all of their IRA accounts into a self-directed solo 401k, including the entire balance of an account with some after-tax basis from a nondeductible contribution? The rollover was done at the end of 2016, the original IRA account was closed. The 401k funds haven't yet been invested so have no earnings. 

401(a)(31)-1, Q&A 14 indicates that "the amount of the invalid rollover contribution, plus any earnings attributable thereto, is distributed to the employee".  But how do you complete the 1099-R for this situation, are taxes or penalties owed, and do they take the distribution as an early withdrawal, or can the funds be re-deposited into an IRA?

[jimjo]

Anyone have any ideas about this?

[hr for me]

Do you have any idea when the original aftertax money was deposited/contributed?  (I am thinking of Pre87, Post 86 taxable rules).....If the 401k has no after-tax bucket and basis tracking and doesn't want to set it up due to costs or can't, I would say the amount would need to be returned. The question I see is whether any prior earnings attributable to the aftertax amounts would need to be distributed also.  So I don't see it just as current earnings since the rollover but rather all  earnings on the aftertax amounts.

after 1986, the IRS decided it wanted to get some taxes on some aftertax earnings rather than letting 100% of them sit in the participant's account.  So you might consider that viewpoint.