401k after-tax to Roth leaving some balance in plan

Hi all,
I have a client who had a pre- and (non-Roth) post-tax balance in their 401k and last year, took what they thought was an entire distribution from the plan, directed the pre-tax balance +/- $1,000,000 into a TIRA, and the post-tax balance +/- $80,000 in a Roth IRA as a direct rollover in both cases. Custodian of 401k was Fidelity.

After their completed rollovers, a dividend was paid on the stock inside of the plan, and they never took that out until it was distributed to them in cash this year (with 20% withholding of course) automatically in February, as a 2016 distribution.

the 2015 1099-R form indicated Total Distribution, Code G, with the correct gross in box 1 and the correct post-tax in box 5. $0.00 taxable amount. no other amounts, no other boxes checked, or codes typed in.

Does the distribution of the +/- $600 in 2016, or really the presence of the $600 at year-end in the plan present a problem with the new (ish) post-tax-401k-to-Roth IRA rollover rules?

Or basically, what is the tax impact in 2015 assuming the figures above? Just to be clear the Total Distribution box was indeed checked for the 2015 1099R, even though money was paid into the plan 7 days later when the dividend was paid.

Thank you!



  • The 2015 direct rollover reporting is not affected by the dividend, and the 2015 1099R can be reported as is. For 2016, a pre tax dividend less withholding was distributed and will be reported on a 2016 1099R. Within 60 days of receipt, client can roll this distribution over to either IRA but will have to replace the withheld amount. If rolled to the TIRA, there will be no tax due, but if rolled to the Roth IRA, tax will be due for 2016. Of course, client can simply take the cash and put it in their checking account and report the taxable income in 2016.
  • Unless client’s Roth IRA is already qualified, be sure client keeps that 1099R to document the non taxable Roth IRA rollover. This amount is treated as a non taxable Roth conversion for 2015 and client will need to know the updated composition of his Roth IRA if he ever takes a distribution before the Roth IRA becomes qualified.


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