How do you account for taxed contributions from a Company 401k rollovered to an IRA for RMD calculations.?

[Critter]

The RMD is calculated using the year end value of the account no matter what kind of contributions were made.  Now your real question should be how does the basis come in to play when figuring the taxable portion of the RMD taken?   That is handled in the program automatically after you enter the 1099-R in the program and complete the follow up screens to enter the basis in all your IRA accounts and the form 8606 is populated.

[macuser_22]

What do you mean "taxed contributions".   After-tax money in a 401(k) can not be rolled into a Traditional IRA, only a Roth IRA which does not have RMD's.  It is not clear what you are asking.

[lousau]

Thank you for your help.

[lousau]

I had a rollover from another company's savings plan that was taxed contributions. This occurred before a Roth IRA even existed.

[dmertz]

After-tax money in the traditional account of a 401(k) *can* be rolled into an traditional IRA.  However, since the IRS issued Notice 2014-54, it makes more sense to roll the after tax portion to a Roth IRA.  In this case, it seems that the after-tax money from the traditional account in the 401(k) was rolled over to a traditional IRA creating basis in nondeductible contributions in the traditional IRA.

[macuser_22 · Accepted solution]

If your Traditional IRA contains both before-tax and after-tax money then the after-tax money is a "basis" in the IRA which will affect the taxable portion of the distribution.  It has nothing to do with the amount of a 2017 RMD which is determined by the total value of all Traditional IRA accounts as of December 31, 2016.

The after-tax money should have been reported on a 8606 form at the time of rollover and if there have been any distributions since then a new 8606 would be generated to calculate the taxable/non-taxable portion of the distribution, with the new carry forward basis in box 14.

Any time a distribution is made, the taxable/non-taxable amount must be prorated between the amount of the distribution and the total year end value of all Traditional, SEP and SIMPLE IRA's that you might have.  That is done by using the carry forward 8606 box 14 amount from the last 8606 that was filed and calculated on lines 6-15  on a new 8606 with the new carry forward basis in box 14 for future distributions.

A 8606 is only generated if there is either a new non-deductible contribution, a distribution or a Roth conversion, otherwise the last filed, not matter how long ago, is the 8606 to use.

[dmertz]

The IRS asks that after-tax basis rolled over from the 401(k) be reported when Form 8606 is required for some other reason.  The basis rolled over from the 401(k) is reported as an adjustment to the basis in nondeductible traditional IRA contributions.  In TurboTax this is done by clicking the EasyGuide button after telling TurboTax that you made nondeductible contributions to your traditional IRAs, then marking the box indicating that you rolled money over from an employer plan and entering the amount of after-tax money rolled over.

[lousau]

Thank you for your response. Does it matter that I am advising the IRS about this now? I have had no occasion for a Form 8606 is be issued.

[Critter]

The 8606 is only used when needed ... and they already know you have basis but they hope you forgot.

[Critter]

It is possible that the account manager will report the taxable portion for you on the 1099-R ... wait & see.

[lousau]

LOL......you are most definitely correct.

[dmertz]

If you will be taking an RMD in 2018, you will have a need to file 2018 Form 8606 to calculate the taxable and nontaxable portions of the distribution.  If the 2018 RMD is your first distribution after your IRA acquired basis from the 401(k), it's this 2018 Form 8606 that should include the adjustment to the basis on line 2.  Your tax return should also include an explanation statement for the adjustment to your IRA basis.

[macuser_22]

The IRA basis is the total aggregate basis over all Traditional IRA accounts. You can have as many IRA accounts as you want but the IRS treats them as a single IRA.    The IRA custodian has no way of knowing how much basis is in any other IRA account held by a different custodian so the custodian cannot indicate the taxable part.

A 8606 for should have been part of the tax return that reported the 401(k) rollover to the IRA.   Perhaps 401(k) statements from that time will show the before-tax and after-tax amounts.   Bank statements form the time of the rollover might also show it.  

When I rolled my 401(k) to an IRA there were two transactions and two 1099-R's, one for the before-tax part and one for the after-tax part.  Check your records and your tax return from the year that you rolled it over.

[lousau]

This will be difficult to do, since the total 401K monies went into a brokerage account that was used to purchase different types of investments. There was no separation of taxed and non-taxed money used for the various equities.It was one lump. Any ideas????