Tax implications for moving IRA money with pre-tax and post-tax contribution

Forum|Forum|4 years ago
April 25, 2022
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I have an IRA account that has pre-tax as well as post-tax contributions. I was thinking of consolidating and rolling my pre-tax IRA amount into my current 401k and the post-tax into the Roth IRA. Does the IRS allow such a thing?

P.S. Turbotax generated a Form 8606 for me last year, which doesn't look at each transaction but just net annual movements.

Best answer by Mike9241

yes you can see table 1-4 page 22 in IRS pub 590-A for allowed rollovers

https://www.irs.gov/pub/irs-pdf/p590a.pdf

note that a portion of the rollover to the Roth may be taxable

the rule is that the amount of the distribution that would have been included in income if it were not converted to a Roth IRA is included in income in the year of the conversion. thus any part of the conversion that is attributable to basis is not included in income.

macuser_22

Employee

@NJ_Devils wrote:

I have an IRA account that has pre-tax as well as post-tax contributions. I was thinking of consolidating and rolling my pre-tax IRA amount into my current 401k and the post-tax into the Roth IRA. Does the IRS allow such a thing?

P.S. Turbotax generated a Form 8606 for me last year, which doesn't look at each transaction but just net annual movements.

If it is an IRA then no.

You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).

For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio) , with the remaining $54K of basis staying in the IRA for future distributions. As long as there is any money in the IRA, there will be some basis.

TurboTax will ask for your non-deductible "basis" and then the *Total Value* of *all* Traditional IRA, SEP and SIMPLE accounts as of Dec 31, of the tax year. That is so the prorating of the basis can be properly proportioned between the current years distribution and the remaining IRA value. That is done on the 8606 form.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

NJ_DevilsAuthor

So, I was referring to the IRS instructions for "Rollovers to multiple destinations". See below. Basically, I don't want to keep the IRA. Just take all money out into the 401k and Roth IRA and be done with it.

From https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans

Rollovers to multiple destinations

Distributions sent to multiple destinations at the same time are treated as a single distribution for allocating pretax and after-tax amounts (Notice 2014-54 PDF). This means you can roll over all your pretax amounts to a traditional IRA or retirement plan and all your after-tax amounts to a different destination, such as a Roth IRA.

Example: You withdraw $100,000 from your plan, $80,000 in pretax amounts and $20,000 in after-tax amounts. You may request:

• A direct rollover of $80,000 in pretax amounts to a traditional (non-Roth) IRA or a pretax account in another plan,
• A direct rollover of $10,000 in after-tax amounts to a Roth IRA, and
• A distribution of $10,000 in after-tax amounts to yourself.

macuser_22

Employee

That is talking about rollover a 401(k) to IRA's. You asked about rolling over an IRA. I don't believe that pplies to IRA's.

(User @dmertz what do you think?)

The first sentence says: Many savers have made after-tax contributions to a 401(k) or other defined contribution retirement plan. If your account balance contains both pretax and after-tax amounts, any distribution will generally include a pro rata share of both.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**