401k After Tax In Service Withdrawal to Roth
Hello,
My client has an after tax option in his 401k. He’s 61, with a marginal tax rate of 33% and is saving up to the 401k Before Tax max. of $24,000. His income is over the $193,000 Adj. Gross Income Limit for a Roth IRA Contribution. His company allows In Service after tax withdrawals if you’re over 59 1/2.
1. Can he invest up to the $53,000 max of his pay (all his deferrals plus employer contributions plus after tax contributions) and then in turn, every 6 months, do a In Service Withdrawal of all his After Tax contributions and roll that directly to a Roth IRA?
2. Can he roll over his current After Tax Contributions directly to a Roth?
I assume that the accumulated earnings can not be rolled to the Roth.
This allows him to grow his Roth IRA even though he does not meet the income requirement.
Thanks for your time, Sincerely, Heidi Davis
Permalink Submitted by Alan - IRA critic on Tue, 2015-05-05 03:12
In general, this can be done. However, note that his plan may cap contributions at a figure less than 53k in order to avoid the risk of employees going over the limit in the event of forfeitures or more matching than expected. His plan will also specify how often the after tax sub account can be distributed. Any earnings on the after tax contributions must also be distributed, and can either be rolled over to the Roth IRA with the earnings taxable, or per Notice 2014-54 the earnings can be directly rolled over to a TIRA account, while the AT contributions go to the Roth IRA.
Permalink Submitted by Heidi Davis on Tue, 2015-05-05 04:22
Alan, This is amazing that those with the 401k After Tax and In Service Withdrawal Options can invest in a Roth this way even though their income is above the Roth IRA limit. Appreciate the Notice # 2014-54. Thanks much for helping this couple more efficiently save for their retirement. Sincerely, Heidi