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Can after tax 401(k) contributions be "rolled over" into a Roth IRA? Without penalty?
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<Can after tax 401(k) contributions be 'rolled over' into a Roth IRA? Without penalty? >

I am NOT TMF Taxes, so bear that in mind.

From what I have read, you can roll a 401(k) over into a Roth IRA (if your 401(k) permits it) without penalty, unless you consider paying the income tax on the entire current value of your 401(k) to be a penalty. I WOULD consider that a penalty, considering that it would definately put me in a higher incremental tax bracket, but I am considering a rollover anyway to avoid paying any future tax on the money, especially the 15% excise tax on excess distributions. I do not have enough information yet to make a decision. I would like to see an up-to-date version of IRS PUB 590 before deciding. This will not be available until 1998, I imagine.
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<<Can after tax 401(k) contributions be 'rolled over' into a Roth IRA? Without penalty? >>

Nope. After tax 401k contributions can't be transferred to ANY type of an IRA account. When you leave employment, and "rollover" your 401k funds into an IRA, you are REQUIRED to remove and not roll over any after tax funds contributed to the 401k. So this is no major change.

As far as taking your taxable 401k funds and "rolling" them over directly to a Roth IRA, it doesn't look like it would be permitted. It appears that you must first move the funds to a "regular" rollover IRA. Then you could elect to again "rollover" these IRA funds into the new Roth IRA (assuming that you otherwise qualify to do so), and pay the tax on the rollover.

TMF Taxes
Roy
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<<From what I have read, you can roll a 401(k) over into a Roth IRA (if your 401(k) permits it) without penalty, unless you consider paying the income tax on the entire current value of your 401(k) to be a penalty. I WOULD consider that a penalty, considering that it would definately put me in a higher incremental tax bracket, but I am considering a rollover anyway to avoid paying any future tax on the money, especially the 15% excise tax on excess distributions. I do not have enough information yet to make a
decision. I would like to see an up-to-date version of IRS PUB 590 before deciding. This will not be available until 1998, I imagine.>>

Other than the "direct" rollover from the 401k to the Roth IRA (and you could very well be correct...this is a technical issue that could be interpreted either way IMHO), I agree completely with JeanDavid.

As the information gets more solid, we will all be able to decide if the payment of tax NOW will offset the tax free nature of the distributions in the future.

What scares the crap out of me is, about 6 or 7 years from now, hearing some greasy policitian say...

"These Roth-IRA people MUST be rich by now. That being the case, I think we should tax any Roth IRA distributions for any taxpayer's with incomes over $75,000."

Would that happen? Not likely. But certainly something that I will keep in the back of my mind when helping my clients to make the decision to pay the tax now or later.

TMF Taxes
Roy Lewis

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