401K Transfer to Rollover IRA with After Tax Contribution

Forum|Forum|2 years ago
February 5, 2024
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Hello - I transferred/converted $200,000 of the $250,000 total amount from my 401K to a Rollover IRA. The 401 plan administrator, which also holds my Rollover IRA, had to allocate % of the each of my 401K holding categories (i.e., large cap, mid cap, cash; and before tax and after tax contributions) to make up the $200,000 transfer, so a small portion of the transfer was from "after tax contributions" in my 401K. The after tax contribution total in the 401K was about $2,000, with $1,200 contributed by me (unmatched?), and $800 by my company (matched?). The 401K administrator allocated the "after tax amounts" from my 401K to the rollover IRA as follows:

my 401K after tax contribution - transferred $800 of the $1,200 to rollover IRA

my 401K after tax company match (?) - transferred $500 of the $800 to rollover IRA

so a total of $1,300 of the $2,000 "after tax 401 amounts" was transferred from the 401K to rollover IRA

My rollover IRA statement shows $200,000 was deposited into my rollover IRA account, and did not show any after tax amount separately. I did not get a check for the after tax amount (i.e., the $1,300) so I assume that all the after tax amounts went into the rollover IRA. The 1099R for the 401K distribution shows $200,000 in box 1 "gross distribution", $0 in box 2 "taxable amount", $350 in box 5 "employee contribution/designated Roth contributions or insurance premiums", code "G" in box 7 with IRA/SEP/Simple box "unchecked".

Since I have after tax contributions in the 401K that I already paid tax (?):

1. Should the after tax amount, or at least my contribution, not taxable?

2. Since the entire $200,000 is shown in my IRA statement, would I have to pay tax on my "after tax contribution" again when I start taking money out the rollover IRA account?

3. Also, I don't know how the $350 in box 5 was determined because it did not match with the after tax distributions/withdrawals (was this my initial contribution that was out of my pocket?) .

Please advise. Thank you.

Best answer by dmertz

Hello, I made some typo errors on the data that is on the second 1099R. Here is the info on the two 1099Rs:

1099R for partial 401K distribution to a traditional IRA (my question of this post)

Box 1 gross distribution - $200,000 (out of total amount $250M in 401K)

Box 2a taxable amount - blank

Box 5 employee contributions (portion of my after-tax contribution?) - $400

Box 7 distribution code - G with IRA/SEP box unchecked

1099R (different event/account from the 1099R above) for partial traditional IRA (different IRA account from above) rollover to Roth

IRA distribution - $60,000 (To Roth - $57,500, Tax Withheld - $2,500)

Box 1 - $60,000

Box 2a taxable amount - $60,000

Box 4 FIT - $2,000

Box 7 - code “7” with IRA/SEP “checked”

Box 14 state tax - $500

Per my previous post on filling out Form 8606,

- I have one 1099R for 401K distribution to traditional IRA, which is a non-taxable event. However, since some of the 401K distribution amount was after-tax ($400), so I have to fill out Part I, because I have a "non-deductible IRA", which is the $400?

- I have another 1099R for partial conversion of another traditional IRA to Roth, so I have to fill out Part II.

- Is Part I supposed to also include the $ for the traditional IRA to Roth conversion? on Form 8606 line 3, it asks "in 2023, did you take a distribution from traditional IRA...or make a Roth IRA conversion?". And I did, although it is a different traditional IRA account from the one that I made the 401K distribution. It looks that Part I would include both (1) the 401K distribution to traditional IRA, and (2) the traditional IRA (different IRA account) conversion to Roth? And then the Roth conversion number ($60,000 - $2,500 tax withheld = $57,500?) would be transferred from a line (i.e., line 8?) to line 16 on Part II?

I have the window desktop version of TurboTax Premier, and I cannot find the "EasyGuide" button per your reply. So I used the step by step interview feature in TurboTax to enter the two 1099Rs. The interview questions did not ask me about after-tax 401 distribution or non-deductible IRA. After the 1099R input, I checked the printed format of Form 8606, there are nothing on Part I, and it only shows my conversion from traditional IRA to Roth on line 16-18.

No sure what I did wrong. Please advise. Thank you.

[Edited] That makes more sense. When entering the code-7 Form 1099-R, be sure to indicate that you moved the money to another retirement account, that you did a combination of rolling over, converting and cashing out, the indicate that $57,500 was converted to Roth.

When you get back to the page that lists the Forms 1099-R that you have entered, click the Continue button. After answering Yes, you made nondeductible contributions to your traditional IRAs, TurboTax will preset the following page:

RobertB4444

The after tax contribution amount was information for the administrator of the IRA. When you take the money out of the IRA you will have to pay taxes on all of the pre-tax distributions but not the after tax distributions. So the 1099-R that you receive somewhere down the road will show the total distribution in box 1 and the taxable distribution in box 2 will be a little less.

As far as the rollover that you have to enter for this year go ahead and enter that 1099 just as it is written. There are no taxes due on anything at this time.

@syoung123

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syoung123Author

Hello, thank you for the information. To clarify my understanding:

1. The year 2023 1099R (from the 401K administrator) for the 401K distribution to the traditional IRA with the employee contribution after-tax amount of $400 in Box 5 (or the data on the 1099R?) was supposed to be sent to the IRA administrator (the recipient of the 401K distribution), and the IRA administrator would put into their records to show $400 of the $200,000 transfer is after-tax? So when I start pulling money out of the traditional IRA, the IRA administrator will have the information to put on the future 1099R for the IRA distribution to show the taxable amount on Box 2a? For instance, if I pull all the money out or convert to Roth, the 1099R at that time will show Box 1 gross distribution of $200,000, and Box 2a taxable amount of $199,600 ($200,000 minus $400)? What will show in Box 5 and what code will be in Box 7?

2. The after-tax of $400 would not show anywhere on the 2023 tax forms, such as Form 8606? I read somewhere that the after-tax amount needs to be put on Form 8606 (don't know which lines on the form) so IRS will have the record of the after-tax amount for the future traditional IRA distribution that $400 should be deducted from the IRA distributions since it was already been taxed?

3. The "investment gains" and company matches related to the after-tax 401 contributions (paid by me with after-tax dollars) that also went into the traditional IRA will be taxable when I pull the money out since I did not "pay" them and they are pre-tax dollars?

4. When I input the current 1099R into TurboTax, the software will correctly calculate and generate the tax forms with all the correct amounts? For instance, I input the $400 in Box 5 of 1099, and it won't show anywhere on the tax forms and that is correct?

Thank you in advance for your reply.

dmertz

Employee

"The year 2023 1099R (from the 401K administrator) for the 401K distribution to the traditional IRA with the employee contribution after-tax amount of $400 in Box 5 (or the data on the 1099R?) was supposed to be sent to the IRA administrator (the recipient of the 401K distribution), and the IRA administrator would put into their records to show $400 of the $200,000 transfer is after-tax?"

No, it's your responsibility to track your basis in nondeductible traditional IRA contributions. When you are next required to file Form 8606, you'll add the $400 on line 2 an provide an explanation for this adjustment to your basis as after-tax basis rolled over from an employer plan. Because this rollover of basis is not to be reported on Form 8606 until you are next required to file Form 8606, TurboTax does not automatically make this adjustment. When you do need to file Form 8606 for some other reason, you'll indicate to TurboTax that you made nondeductible contributions to your traditional IRAs, click the EasyGuide button, mark a box to indicate that you moved after-tax basis for an employer plan to your traditional IRAs, then enter the $400 adjustment. TurboTax will then prompt you to enter an explanation of the adjustment.

The investment gains and company match in the traditional 401(k) are pre-tax.