Voluntary After-Tax Distributions

[Nate X]

My helmet is on too tight.  An active participant has a $100,000 balance in the plan.  $25,000 is in voluntary after-tax with $20,000 basis.  The rest of the money is pre-tax.  Based on the plan document and regulations, the participant is only eligible to take a distribution from the voluntary after-tax source.  Can the participant rollover the $25,000 to an IRA(s) with a basis of $20,000 based on this...

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.  

[spiritrider]

Yes, the participant can rollover the after-tax basis to a Roth IRA and the taxable earnings to a traditional IRA. This will be a non-taxable rollover.

While not stated in the quoted Q&A, the participant could also rollover the entire balance to the Roth IRA with the earnings subject to ordinary income tax.

[lp1965]

A variation on this theme.....I have an owner who will be taking his first RMD this year.  His account consists of Roth deferrals, safe harbor match, discretionary profit sharing, rollover and voluntary after tax funds.  Can he pick which source to take the RMD from??  The plan document is silent on this issue.  Two additional wrinkles--(1) We don't have the basis amount for the voluntary after tax funds.  The plan started in 1983, but my firm took over in 2010.  We are trying to get the basis amount from the prior TPA.  (2) The plan will be terminating later this year.