After-tax

[cdavis25]

A participant wants to make an after-tax contribution to the plan and then, roll that out the next day to a Roth IRA.  It would sit in a holding account and have no earnings for the one day.  The 401(k) plan does allow after-tax contributions and Roth deferrals.  The participant is over 59.5 and the plan allows in-service of after-tax money at any time.  Assume the plan does not have a testing issue with ACP.  I believe that is possible using a code G on the 1099R and none of it would be taxable b/c no earnings.  Is this right?  Seems too easy to go around the Roth IRA limits. 

[BG5150]

Is that holding account asset available to all participants?

[cdavis25]

Yes, owner only 401(k) plan.

[CuseFan]

Yes you can do this, I have a couple clients that do. Need to make sure the after-tax contributions and money-type "bucket" are properly recorded and separately record-kept.

[Luke Bailey]

cdavis25, why does this seem too easy? It's no easier than making Roth elective deferrals or in-plan Roth rollovers, or Roth conversions of pre-tax rollover accounts, right? The anomaly is that the Roth rules are much more liberal for amounts that start out in 401(a) plans than IRAs. That is the wisdom of Congress, which is above my pay grade for sure.

[IHC]

Of course, after-tax contributions are subject to ACP testing and if you allow them to be rolled into a Roth before that testing is done, you may find that ineligible contributions have been rolled over.  This shouldn't affect an owner-only plan.