@JoeVade wrote:
In my case, my plan is employer sponsored and my roth and traditional contributions go into the same account, so there's no way for me to say which holding corresponds to pre-tax vs after-tax vs Roth as they are all in the same pile -- it is possible, however, to determine and track the % pre-tax, % after-tax, and % Roth of the entire account as a whole, which is why I'm wondering about my original question.
I'm not familiar with your situation, my retirement plans have always been held at big investment firms (Fidelity, T Rowe Price, etc) and the pre-tax and after tax funds are held in separate accounts. Here, you may have one overall account but two internal accounts for bookkeeping purposes. Or, the trustee needs to be keeping really good track both of pre-tax and after-tax contributions, and the earnings that can be allocated to the pre-tax and after-tax funds.
It's also not clear to me how, under your plan, the loan would be funded. Is it funded from the pre-tax side, the after-tax side, or both, and who decides? Can you choose to borrow only from the pre-tax or after-tax side? Loan interest should be allocated in the same way as the loan balance. If the loan was funded from the pre-tax side, the interest has to go into the pre-tax side, resulting in "double taxation" as you call it.
I am doubtful you could legally assign the interest to the after-tax side if the loan principal came from the pre-tax side. If you are planning ahead and haven't taken the loan yet, could you take it from the after-tax side only?
I'm also concerned about whether the trustee can really accurately allocate earnings if the funds are co-mingled. Possibly, you misunderstand how your funds are held. If not, I might want to the issue as a concern with your employer or the trustee and see how they explain things. You may want a review from a high level accountant who is trained on these types of plans. I wouldn't want you to be disadvantaged because of something your employer did 20 years before. Not that I know something is wrong, I am just concerned by your description and I don't have all the facts.
Depending on your income and other tax situations, it might be worth considering making only pre-tax contributions at work and making your after tax contributions to a private Roth IRA that you can set up at a broker of your choice, you can contribute up to $6000 per year depending on your income, or you can contribute to a non-deductible IRA and do a "backdoor" conversion, again up to $6000 per year (or $7000 if age 50 or older). If all the work money is pre-tax, that will avoid confusion in the future.
The bottom line for me is that your situation has some twists and turns that I don't fully understand, but I don't know of a way to repay a loan from a pre-tax 401(k) and have the interest go to an after-tax (Roth) account instead of the pre-tax account. You may want to consult a paid professional expert in your area.
