Must a rollover of after-tax contributions be issued in separate check?
Client had 401k balance consisting of 80% pre-tax dollars and 20% after-tax. Client requested direct rollover of pre-tax to their traditional IRA, and direct rollover of after-tax balance to their Roth IRA. This was a complete distribution of their balance in the plan.
Plan record keeper instead cut one check for the total. The stub correctly lists the total as eligible for rollover, and separately lists the pre-tax amount and after-tax contribution amounts.
Question: Can we simply split the deposit and deposit the pre-tax portion into her Traditional IRA as a direct rollover and the after-tax portion into her Roth IRA as a direct rollover? Or must we go back to the custodian and have them issue two separate checks?
Permalink Submitted by Alan - IRA critic on Thu, 2019-02-14 23:05
There should have been two checks, one for each IRA account with the appropriate payee shown. Client should be very sure the custodian understands the amount intended for each IRA. It isn’t necessary to have the check reissued as long as very clear instructions are given to the IRA custodian and the IRA accounts checked with a couple days to be sure the deposit amounts are correct. Having a single check issued is a good indication that there will also be a single 1099R issued next January. That isn’t correct either because many tax programs will not handle it correctly and it will have to split into two pieces, one for each IRA type.