May
30
The Roundabout Way to a Roth IRA
A 2014 IRS ruling makes it easier for taxpayers to move after-tax 401(k) contributions directly to a Roth IRA. Prior to the notice, it was possible to achieve a tax-free Roth conversion of after-tax dollars in an employer plan, but it was a complicated process using 60-day (indirect) rollovers rather than trustee-to-trustee transfers.
Not only did this involve several steps but it required taxpayers to have sufficient funds outside the plan to make up the 20% mandatory withholding that applied to the taxable portion of the distribution. Plus, when a 60-day rollover is not executed correctly, it could be deemed a taxable distribution, which is also subject to a 10% early-withdrawalpenalty for participants under age 59½.
Not only did this involve several steps but it required taxpayers to have sufficient funds outside the plan to make up the 20% mandatory withholding that applied to the taxable portion of the distribution. Plus, when a 60-day rollover is not executed correctly, it could be deemed a taxable distribution, which is also subject to a 10% early-withdrawalpenalty for participants under age 59½.
