Question

After-Tax earnings accidentally rolled into Roth IRA

Forum|Forum|5 years ago
April 7, 2021
1 reply
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I took a distribution from my 401k at work. I received two checks, one for my pre-tax contributions and one for my after-tax contributions. I did not realize that after-tax earning were included in the after-tax contributions check as it was not shown on my statement or check stub. Now I have gotten a 1099-R showing that I will owe taxes on the earnings of the after-tax earnings that I accidentally rolled into my Roth. Is there a way to fix this and have than money moved back to my traditional IRA?

D

dmertz

Employee

Nothing can be done. The Tax Cuts and Jobs Act of 2017 eliminated that possibility. The taxable portion of the rollover to the Roth IRA must be included in your taxable income.

On the plus side, growth on the money in the Roth IRA will now be tax-free once the requirements for qualified Roth IRA distributions are met. If that money had been put into a traditional IRA, the growth would only be tax deferred. You might come out ahead in the long run.

F

fwl1982Author

What about the possibility of an excess removal?

D

dmertz

Employee

Not permitted. Returns of contributions are only permitted for regular contributions, not rollovers. Even if you could, it would still be subject to income tax and potentially additionally subject to an early-distribution penalty.

(A failed rollover would become a regular contribution, but that's not the case here.)