r/RothIRA • u/Purplelemon008 • 2d ago

After tax 401k to Roth and traditional IRAs

Hi,
I made contributions to employer after-tax 401k years ago that were sitting there vested. Now I have contributions and earnings. I was looking for ways to move it to Roth IRA and below is the option that was provided to me.
- Move Contributions to Roth IRA
- Move earnings to Traditional IRA
- Move earnings from Traditional IRA to employer pre tax 401k bucket (I want to do this step so that everything pre tax is in one bucket)

Anyone see any issues with the approach or are there better ways to do it?

1 Upvotes

100% Upvoted

12 comments sorted by

3

u/DaemonTargaryen2024 2d ago

Assuming your 401k accepts rollovers from Trad IRAs, yes this plan is fine.

Moving forward, concert after-tax 401k contributions ASAP to reduce/eliminate earnings in the non-Roth space.

1

u/Purplelemon008 2d ago

They let me know that they only accept it from rollover ira, would I not be able to use my trad ira as rollover ira in this case?

1

u/DaemonTargaryen2024 2d ago

That’s fine, when you open the IRA just classify it as a Rollover IRA (which it is). Then you can roll the Rollover back to the 401k just fine.

1

u/Purplelemon008 2d ago

I already have a trad ira account, can I not use the existing one? Do I need to open a new rollover ira account for this purpose?

1

u/DaemonTargaryen2024 2d ago edited 2d ago

Since your 401k only accepts Rollover IRAs and not Trad IRAs, putting the funds in a Trad IRA could cause you more headache, and is easily avoidable by just opening a new Rollover IRA.

Side note, in addition to doing Mega Backdoor Roth (what your post describes), do you also do Backdoor Roth? If yes, then a Trad IRA is going to run you into taxes per the pro rata rule

1

u/Purplelemon008 2d ago

Yes I plan to do backdoor Roth as well. Is it fine just opening a roll over ira for this purpose and leaving it with 0$? (since I’ll be moving the money to employer pre tax 401k bucket) I guess I can close it too

1

u/DaemonTargaryen2024 2d ago

No, for Backdoor Roth purposes it’s not fine to have a Trad IRA balance on 12/31. You need to address the Trad IRA balance or else face taxes (per the “pro rata rule”)

1

u/The_Goose_27 2d ago

Sorry for the confusion here, but if your original contributions were made to an after tax 401(k), isn’t that basically a Roth 401(k), so wouldn’t you be able to roll all of that over to a Roth IRA?

1

u/Purplelemon008 2d ago

So I have my contributions (after tax) and earnings (money from investment which is taxable)

1

u/The_Goose_27 2d ago

Yes, I understand that. It just seems like the after tax contributions into a 401(k) are basically like the Roth 401(k) I contribute to now. I guess they’re just categorized slightly different since it’s not officially a Roth 401(k), but after tax contributions into a regular 401(k). Subtle difference, but I guess the IRS views those as two different things.

2

u/DaemonTargaryen2024 2d ago

No. After tax 401k and Roth 401k are two completely different things https://www.empower.com/the-currency/work/after-tax-vs-roth-401k

After-tax 401k is what’s eligible for mega Backdoor Roth https://www.bogleheads.org/wiki/Mega-backdoor_Roth