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I was reading information in the TMF Retirement section http://www.fool.com/retirement/manageretirement/manageretirement3.htm and in an area discussing lump sum withdrawals from a defined contribution plan it states:

-- You may transfer the money directly to an Individual Retirement Account (IRA) to continue the tax deferral until you begin withdrawals. (Warning! The note that follows may confuse you if you don't read it twice: Any after-tax employee contributions you made to a 401(k) or other defined contribution plan are not taxable and may not be transferred to an IRA. Such monies will normally be provided to you in a separate check, which you may cash and use as desired.)

Isn't that last part no longer true? Can't after tax money go into a rollover IRA and then withdrawals are considered partly taxable and partly non taxable?

Bob (Who is confused and approaching retirement)
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You are correct. As of this year, both the non- and taxable amounts can be put into the Rollover IRA. I did the rollover last year, and received a check for the after-tax money I had put in. Had I waited till this year (who knew!!), it could all have been rolled over.

Cheers and good luck!
jtr
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jtr56 answered:

As of this year, both the non- and taxable amounts can be put into the Rollover IRA.

Thanks for the response. You indicated that after tax money MAY be put into an IRA. My related question is whether they MUST move with the pretax funds or can that amount be split out and handled differently? I can think of some circumstances where it might be desireable to keep the money separate.

TIA, Bob
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I believe a 401(k) with some pretax and some posttax money is now treated the same as a traditional IRA with a deduction claimed on some of the contributions but not others.

Here's how it works:

All of your IRAs are treated as if they were agglomerated into one big account. Any withdrawal from any IRA is partially untaxed according to the portion of the money you put in that was aftertax. You can't designate "I'm withdrawing only post-tax money".
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All of your IRAs are treated as if they were agglomerated into one big account. Any withdrawal from any IRA is partially untaxed according to the portion of the money you put in that was aftertax. You can't designate "I'm withdrawing only post-tax money".

This is true, but not to the point of CABob's question.

My related question is whether they MUST move with the pretax funds or can that amount be split out and handled differently? I can think of some circumstances where it might be desireable to keep the money separate.

When you leave your employer, you can choose to roll over some, all, or none of your 401K funds. If you do not roll over (i.e., if you withdraw) some or all of your pre-tax money, you will be subject to regular income tax, as well as a possible penalty (if you are <55 years old, not doing SEPP, etc.). If you do not roll over (i.e., if you withdraw) some or all of your after-tax money, there is no tax consequence--tax has already been paid.

So, there is no "must" involved--but one choice has consequences.

HTH
jtr
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