Retirement Plan Roll Over

Andy Ives posted a response to a reader on 4-11-2019 which I believe is not correct. A reader said his wife had $22K after tax IRA mixed in his $200K Traditional IRA. He wanted to roll over the $178K in a company 401K. You advised him that he can convert the remaining $22K in to a Roth .
I believe that was not quite accurate. Mixing after tax and pre-tax IRA is like mixing coffee and milk. You cannot separate them explicitly and convert 178K to a 401K and the 22K to a Roth. Since the reader’s employer will not accept after tax dollars, the 178K has proportional after tax dollars in it which cannot be separated out and the employer has a policy of not accepting any after tax funds.
Any comments?



Actually, Andy was correct. There is a special rule that when an IRA rollover is made to a qualified retirement plan, the first dollars rolled over are deemed to come from the IRA pre tax balance. This overrides the pro rata rules. Ref Tax code Sec. 408(d)(3)(H). This is also stated in Pub 590A, p 21.



Add new comment

Log in or register to post comments