@jay859 wrote:
My wife left her company after 15 years. She had approx. $75k in her 401k. We assumed it was all pretax. However, when talking to the financial institution, they informed her that $50k was pretax, and $25k was after tax.
The $50k pretax was sent in a check to Fidelity which we deposited in a 401k.
My Questions:
1) The $25k after tax check was made out to her. I think I made a mistake to advise her to get the check made out to her. She is not 591/2 and will perhaps have to pay the 10% penalty (there should be no tax as this was already after tax....I think). Will we have to pay the 10% penalty....but no tax?
2) Since this check was deposited into her checking account, does that NOT allow for the $25k to be rolled over into a new Roth IRA (direct or indirect, or a Mega-Backdoor Roth contribution) and thus avoid the penalty?
3) Any other options?
There is no penalty for the after-tax money. You should probably get two 1099-R's one for the before-tax rollover and one for the after tax distribution with a zero taxable amount in box 2a and the after tax amount in box 5.
The rollover to a Roth must be completed within 60 days of the date io distribution. "Parking" the money in another account temporarily does not prevent the Roth rollover if within 60 days.
**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.**
