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Mrzommer618
Returning Member

401K AND IRA both

Hello,

I

I know my  situation is kinda convoluted but I will try to be concise as possible.  I currently work and have a 401k at my current job and enjoy the tax savings. I HAD a job working at Sears Roebuck company about 20 years ago I no longer work for Sears, but I left my 401K at Sears still performing pretty well over the last 20 years. Now because Sears is being sold off I am required to move my 401k that I still have with the company to an IRA.  I had money taken out of my check Before TAX and After TAX.  What I need TO know is can I create TWO IRA’S One to put the PRE tax money in AND Create one more IRA to put the AFTER tax money in.  I would like to contribute money to the after tax IRA to get an additional tax duction. I think that I should be able to do this but I would like to be sure. Thank you for your advice.

 

 

THANK YOU

 

 

2 Replies
Opus 17
Level 15

401K AND IRA both

No. If you have a mixture of pretax and after-tax money in the Sears 401(k), then any rollover you make to any new IRA will keep the same proportion of pre-and after-tax contributions.

 

If you want to make additional IRA contributions and keep them “clean“, you could open another IRA (traditional pre-tax or Roth after-tax) for your new contributions.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
dmertz
Level 15

401K AND IRA both

Yes, you can request a split distribution pursuant to IRS Notice 2014-54 with the pre-tax money going to a traditional IRA and the after-tax money going to a Roth IRA:  https://www.irs.gov/pub/irs-drop/n-14-54.pdf

 

The distribution split between two destinations in this manner must be requested a single distribution.  Some plans will only permit one direct rollover and will distribute the rest by check.  The direct rollover would be of the pre-tax money to avoid mandatory tax withholding and the after-tax portion paid as a distribution to you which you would then indirectly roll over to the Roth IRA.

 

It generally makes no sense to send both portions of the distribution to two different traditional IRAs since the tax code treats your multiple traditional IRA accounts as if they were a single traditional IRA.

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