401 K post tax contribution roll over
I recently rolled over my 401 K (post tax) contribution to an IRA. Can I withdraw this portion of IRA without incurring peanlty and tax? The contribution in 401 K was in a loss and there is no gain after rolling into IRA.
Thanks.
Permalink Submitted by Alan Spross on Tue, 2010-03-16 22:12
It is rare that your entire 401k balance was after tax. Was this a total lump sum distribution, and are you very sure the entire amount was from after tax contributions?
Even if the rollover was fully after tax, once in your IRA it is combined with any other basis in your IRA plus the pre tax amount. Any withdrawal must be pro rated between after tax and pre tax amounts on Form 8606.
Permalink Submitted by Raj Tela on Wed, 2010-03-17 12:28
Thanks for the reply. Here is the actual situation –
I rolled over pre tax and post tax to an IRA. Check was made out to custodian for pre tax and in my name for post tax contribution. Howvere the IRA where my a/c is put the post tax money also in IRA. I wanted it to be out of IRA. Now when they relaize the mistake they want me to sign a journal entry saying that I am aware of the tax consequences if I withdraw money from IRA. Hence the question that if take it out the post tax portion out of IRA will I be liable for tax and penalty? Or since it came from post tax contribution in first place I dont have to worry about and I sign the jouranl entry. Else I will keep it in IRA.
Thanks for replies.
Permalink Submitted by Alan Spross on Thu, 2010-03-18 01:58
It assume you have both a taxable account and an IRA at the same firm. If so, it is important HOW the firm corrects the error.
They should agree NOT to reflect the after tax amount on Form 5498 which they send to both you and the IRS. They should also agree NOT to issue you a 1099R on the return of this money. In other words, they need to treat this as if they NEVER received it in the first place. In that event you would report the after tax amount distributed on line 16a of your 1040, but nothing on 16b (the taxable line). This would be for the year distributed from the 401k plan, and I do not know whether this was in 2009 or this year.
If they do not agree to the above and issue you a 1099R, you will be taxed on a pro rated portion of the money based on the % of after tax money to the total balance in ALL your IRA accounts. That would not be a correction and you would bear the consequences of their error, have to complete an 8606 as in my prior response.
Permalink Submitted by Raj Tela on Thu, 2010-03-18 12:58
Thanks a lot. It is now getting more clear. The rollover happend about 4 weeks ago (2010).
It seems from your reply that I should not sign the journal entry and ask them to sperate the money without any consequences. But if they dont agree then I am in quandry. I would prefer to keep the money in IRA then. The firm that held 401 K confirmed that they will issue 1099 with codes G for non tax portion and 1 for taxable portion with amount in non taxable cell.
Since all this will happen at the end of year I am worried that where my IRA is will loose track and issue 1099R or something like that which will kill me.
Thanks again.