Now you can rollover after tax 401k contributions to a Roth IRA!

Breaking News a/o 9/18/14

As of this afternoon, the IRS has ruled that after-tax contributions to a 401k plan CAN IN FACT be rolled into a ROTH IRA upon plan distribution. This is a big deal for higher income plan participants (and soon to be retirees), because instead of being forced to keep track of after-tax contribution basis in their IRA, they can simply move the after-tax money into a ROTH.

At the same time they rollover after-tax contributions to a ROTH IRA, they can move their pre-tax contributions into a rollover IRA. Just like it should be!


How this helps you

What can you do with this information strategically? If you’re not retiring soon and cannot make pre-tax 401k contributions to your plan, you may be able to make after-tax contributions JUST LIKE you were making them to a ROTH 401k plan. All you need to do is make sure when you terminate employment, the after-tax contributions are rolled over correctly to a ROTH IRA.

You’ll need to speak with your employer about this of course, and chances are good they’ll have no idea this is even possible – but it’s worth the extra effort!

If you are retiring soon – or haven’t moved your old 401k plan with after-tax contributions in it yet – this means you have a POWERFUL NEW OPTION!

Why is it so powerful? ROTH IRA’s have NO required minimum distributions. Roth assets can grow tax-free indefinitely in the ROTH with no requirement to pull money out and pay taxes like a regular IRA rollover.

The recent IRS ruling stated what we’d suspected, but it’s nice to have an official announcement on the books. Stay tuned for more information!