Why need to know the total 401k contribution basis when converting portion of it to RothIRA?

[john989]

Hello,

Someone asked this question about why need to know the total 401k contribution basis when converting some of it to a RothIRA?

I thought that any contribution into a 401k account plus its earnings over years are all taxable when they are converted to RothIRA. So, what is the purpose of getting the total basis of 401k contributions for the purpose of RothIRA conversion?

[SteamTrain]

"Basis" for a traditional 401k, that only refers to any after-tax contributions to a traditional 401k.

Many people don't have any after-tax contributions, only pre-tax contributions, so if you never made any after-tax contributions, then all of the conversion will get taxed.

_____________________

Some of us (myself) had some after tax contributions to a traditional 401k plan due to limits on what pre-tax amount they could contribute in some prior years.   In that case, that "basis" (after-tax) contribution amount may partially tax-free during the conversion to ROTH.   (or even more rarely, all tax-free for the after-tax amounts contributed before 1987).   

But your 401k administration representative should be able to tell you if that is the case for any of your conversion $$, and how much is not taxed (if any) when you discuss with them the amount you plan to convert.

[Opus 17]

As stated, some people do make after-tax contributions to a 401k that are in a regular account and not a Roth account.  The rules for doing a Roth conversion are different with a 401k than for an IRA.  With an IRA, you follow the pro-rata rule, but with a 401k, the plan is supposed to separate the pre-tax and after tax amounts.  (To the best of my recollection.) 

Of course, it's much easier if you put your pre-tax 401k money in a regular account and your after-tax money in a designated Roth account within the 401k, but some plans might not offer that.  

[SteamTrain]

True....after tax contributions should be made to ROTH 401k's, if available. All of my after-tax contributions were made before ROTH 401k's were started. (Shows how old I am. Retired same year I could have started using one)