topic After-tax 401k to Roth IRA conversion in Get your taxes done using TurboTax

After-tax 401k to Roth IRA conversion

kc123 — Sun, 27 Sep 2020 22:03:29 GMT

Hi,

My employer recently started offering after-tax 401k contributions with in-plan conversion to ROTH IRA (a.k.a mega backdoor IRA contributions). I currently have a pre-tax rollover IRA account.

The question I have would the after-tax 401k in-plan conversion to Roth IRA result in pro-rata taxes because of my existing pre-tax IRA account?

Re: After-tax 401k to Roth IRA conversion

macuser_22 — Sun, 27 Sep 2020 22:16:09 GMT

There is no such thing as a "in plan" conversion to a Roth IRA. A IRA is an individual retirement plan that you hold in a bank. An "in plan" Roth is still a 401(k) plan called a Designated Roth or a 401(k) Roth and is NOT an IRA and is administrated by the 401(k) administrator because it is part of the 401(k) plan - which is why it is called "in plan". Nothing is prorated at all.

Re: After-tax 401k to Roth IRA conversion

kc123 — Sun, 27 Sep 2020 22:22:11 GMT

There is a mechanism to convert after-tax portion of 401k contributions to ROTH IRA. Fidelity offers inplan conversions on a daily basis, so as soon as your paycheck contributions make it to your 401k that after-tax portion would automatically be trasferred to your ROTH IRA. Effectively there won't be any earnings on your contributions and your after-tax contribution just gets transferred to a ROTH IRA account.

https://www.fidelity.com/viewpoints/retirement/IRS-401k-rollover-guidance

Re: After-tax 401k to Roth IRA conversion

macuser_22 — Sun, 27 Sep 2020 22:59:24 GMT

As I said that is not "in plan". What you are referring to is an ordinary 401(k) plan direct rollover/conversion of after tax money to a "out of plan" personal Roth IRA. That is done all the time. Many 401(k) plans don't allow that before retirement age, but some do. Again that has not affect on any basis that you might have in a Traditional IRA.

An "In Plan Roth Rollover" (IRR) is reported differently on a 1099-R than is a Roth IRA Conversion is.

See IRS rules for the 1099-R reporting:

https://www.irs.gov/instructions/i1099r#idm140302484507984