So $10k in affer-tax 401k rolled in plan to Roth 401k. $6k basis and $4k gains. I have individual IRA. Does prorata rule apply when 401k is rolled to Roth 401k by in plan rollover?
Yes, the pro-rata rule does apply when 401k is rolled to only the Roth 401k. Therefore some of the rollover will be included in your taxable income. To avoid this you could take a full distribution (all pretax gains and after-tax amounts), and directly roll over:
- pretax amounts to a traditional IRA or another eligible retirement plan, and
- after-tax amounts to a Roth IRA.
Please see Rollovers of After-Tax Contributions in Retirement Plans for additional information.
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Your traditional IRA has no bearing on determining the taxable amount of your In-plan Roth Rollover. The 401(k) plan administrator is required to determine the taxable amount of the IRR will be reported by the 401(k) plan in box 2a of the code G Form 1099-R that they issue reporting the IRR. If less than the full amount of your after-tax sub-account in the 401(k) was rolled over to the designated Roth account, the plan administrator will do a pro-rata calculation of the taxable amount based on your after-tax basis in this sub-account and the total value of this sub-account.
In reading the IRS link from response 1 this speaks to rolling to Roth IRA which is outside of the 401k plan. The money I moved stayed in-plan, so it is roth 401k. So any special rules related to Roth 401k. The IRS site does not have anything easy to find on this topic. I know the treatment of the money in the roth 401k and roth ira for growth. I am asking asking about transfers or rollovers. Anyone aware of the IRS writing how the roth 401k is the same in treatment during rollovers? I have not located anything.
"any special rules related to Roth 401k?"
An entire section of the tax code, section 402A, covers designated Roth accounts in qualified retirement plans. From that the IRS developed sections 1.402A-1 and 1.402A-2 of the Code of Federal Regulations.
The IRS has provided additional guidance on In-plan Roth rollovers in Notice 2010-84 and Notice 2013-74:
"Anyone aware of the IRS writing how the roth 401k is the same in treatment during rollovers?"
The taxable amount of an In-plan Roth Rollover is explained in Q&A-7 of Notice 2010-84.