401K After Tax Transfer
We have a client that is taking an in-service distribution from his 401k, the distribution will be a direct transfer-rollover to an IRA. However, there is “non-taxable” money in the plan and the plan is forcing him to take a portion of the non-taxable monies out as well. What ever percentage of his before tax money is going to be distributed, he is being informed that he must take out the same percentage of after-tax money. Does this sound right? If so, what are our options for this money? Can we put the after tax money in a Roth. A little more info: The total assets in the plan are about $975k, he is taking out $925k, the non-taxable portion is about $5k. They file MFJ for their income taxes and their earned income last year was under the Roth limits (he made about $150k and she only worked part-time). Therefore, should the after-tax money be directly transferred to a Roth IRA or should this money be distributed out to him and then open a Roth?
Permalink Submitted by Alan - IRA critic on Wed, 2017-06-07 15:28
Client should be able to either do a split direct rollover with the 5k going to a Roth IRA and the rest to a TIRA OR just have the 5k sent to him personally and he can then do a 60 day rollover to his Roth IRA if he wants. He might ask if the total amount of the after tax sub account can be distributed so he does not have any after tax balance remaining in the plan.