After Tax in 401K to TIRA and Roth IRA

I did full rollover of all pre- and after-tax amounts from traditional 401k to traditional IRA in 2004 on separation of service. Can I now rollover the after-tax contributions only of ~$42,000 from that traditional IRA to Roth IRA tax-free--leaving earnings on those after-tax contributions in that traditional IRA--per Notice 2014-54 and IRS Guidance "Transition rules" providing:  "For distributions prior to September 18, 2014, taxpayers can also use the new rule, except for distributions from designated Roth accounts."

• You cannot separate the after tax contributions you rolled into your IRA from the pre tax portion unless you are able to roll the pre tax portion to your current workplace plan if you are participating in such a plan. Otherwise, all distributions or conversions done from your IRA will be prorated on Form 8606 between the basis (after tax amounts) and the pre tax balance of all your non Roth IRAs. 
• If you have not already reported your after tax basis on Form 8606, current IRS guidance indicates that you should do so the next time you would otherwise file Form 8606, such as when you take a distribution.
• The quote regarding "distributions prior to 9/18/2014" only refers to split rollovers done according to the Notice where taxpayers jumped the gun and with the custodian's cooperation did such a split rollover prior to that date. You never did a split rollover. It does not provide a chance to redo a rollover already done in a different manner. Your after tax amount has already been in your TIRA for almost two decades. Again, the only way to accomplish a conversion of only your IRA basis is to roll the entire pre tax balance into an accepting employer plan. You can then convert the IRA basis left behind in the TIRA to a Roth IRA tax free.

As you correctly indicated, it was not even possible to roll a 401k distribution directly to your Roth IRA in 2004. That was first allowed in 2008, although only for those who MAGI was under 100k and were not filing married/separate. About that time the IRS issued Notice 2009-68 that indicated distributions from qualified plans that included after tax dollars had to be pro rated to the various destinations. Some custodians interpreted 2009-68 that way and some did not, so there was a period of confusion from 2010 until the IRS switched course with Notice 2014-54. In that Notice they indicated that they would not dispute split rollovers done prior to Sept, 2014, but of course those rollovers had to be otherwise legal. There are no doubt many thousands of 401k participants who did not take the gamble prior to Notice 2014-54. But it was not possible prior to 2008 to roll ANY 401k money directly to a Roth IRA, so this is all a moot point for you. And there was no way back in 2004 to predict that the PPA passed in 2006 would eventually allow direct Roth IRA rollovers from qualified plans. In a prior post, I indicated a possibility for you do still move the after tax money to your Roth IRA if you can roll the pre tax money to an accepting employer plan. Barring that, your TIRA holds 42,000 of basis which you need to report on Form 8606 at some point to avoid 100% taxation of all distributions, which would amount to double taxation of that 42,000 over many years.

• While that may seem to be a reasonable position, that's simply not permitted.  As stated in the first paragraph of the notice, Notice 2014-54 applies only to distributions from plans qualified under section 401(a).  An IRA is not such a plan.  Once the after-tax money has been rolled into an IRA, IRA rules apply instead.  How the after-tax money came to be in the IRA is irrelevant.  The calculations on Form 8606 will result in a proportional amount of the Roth conversion being taxed.
• The splitting of pre-tax and after-tax money to separate accounts that the IRS is saying will not be disputed involves only rollovers that legally went to a Roth IRA; only the allocation of the pre-tax and after-tax portions was potentially disputable.  Only in 2008 did it become permissible to roll over to a Roth IRA from a traditional account in qualified plan.  Such a rollover was not permitted in 2004.
• The only way to accomplish what you desire is to roll the pre-tax money into a qualified plan (which can be accomplished because tax code permits only pre-tax money to be rolled from an IRA into a qualified plan), leaving in your traditional IRAs just the after-tax money which can then be converted to a Roth IRA tax free.

That's exactly what I'm doing. I'm applying Notice 2014-54 retroactively to full distribution rollover from traditional 401k as per IRS guidance, Transition rules--"For distributions prior to September 18, 2014, taxpayers can also use the new rule" because if I could've done it in 2004, I can certainly do it in 2022. Nothing in Notice 2014-54 or guidance I cited limits it to actual distributions made prior to 2014 intended to be tax-free in violation of pro-rata rule. The government has gotten 18-year interest free loan courtesy of one of the ~40% of taxpayers in US. I'm not happy about that.

There are two reasons you cannot apply this rule to your distribution, as we have been trying to explain. FIrst, it was not legal to roll any 401k distribution into a Roth IRA at the time and second, you already rolled the entire distribution to a TIRA, adding basis to your TIRA. The IRS statement that the rule could be applied retroactively effectively is limited to those that had already placed their basis in a Roth IRA, and the IRS is stating that they will not challenge those rollovers that had already been made. You cannot do this now, your money is already in a TIRA and has been for many years. We have explained this 3 or 4 times now, but of course you are free to proceed however you wish.