On Sat, 13 Jan 2007 03:59:33 -0600, "Dick Watson"
<littlegreengecko[at]mind-enufalready-spring.com> wrote:


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That's normal.

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True.

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Yes on a. On b, yes on rolling the post-tax contributions up to IRA
annual limit to a non-deductible IRA. On many levels I don't like
non-deductible IRAs, so I've never looked at this. But before I tried
to roll more than annual limit to non-deductible IRA I'd want a cite
allowing it.

And after reading through all this, a third choice would be c) buying
a cold case of Bud.


-HW "Skip" Weldon
Columbia, SC

We're talking After Tax contributions here. I'm not sure I follow your
point.

"Charlie K" <Chas_K[at]excite.com> wrote in message
news:1168646615.554964.5960[at]s34g2000cwa.googlegroups.com...
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Maybe I was unclear.

All I have now is an IRA with all after tax contributions and a 401k with
mostly pre-tax and some post tax contributions. My understanding from
talking to the 401(k) provider is that in a rollover they will normally do a
rollover of the pre-tax portion and will send me a check for the after-tax
contributions.

I'm understanding that the latter is considered a distribution, but it's all
already after-tax money, so it's a tax non-issue. Since I'm doing a rollover
of the pre-tax portion, I **will** then have a large pre-tax IRA. Given
that, how could I then convert the after-tax money back into a Roth IRA to
make future gains on it tax free?

Perhaps we need to get back to the first post:

Do I **really** have the choice of a) taking the after tax contributions,
distributed per above, and just moving them to a regular account with no
current tax impact, or b) putting them right back in the IRA and adding them
to my after tax basis on a form 8606?

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news6Wph.19698$yC5.19141[at]newssvr27.news.prodigy.net...
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Dick Watson wrote:
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Given that you don't have any other IRAs, I wouldn't give up on this
idea. It seems you're saying that you can either rollover the whole
401k, or distribute the whole 401k, but not something in between. This
seems strange though, given that you are even contemplating what to do
with the after-tax part -- implicitly, you're able to take that out
without rolling it over to your new plan, correct?

If so -- for example, if you could get a check for the after-tax
portion, as would be typical -- are you sure you can't do an indirect
rollover of that portion (to an IRA)? I don't know the answer but I'd
certainly research it, it would be a big tax benefit. And off the top of
my head I can't think of something preventing it.

-Tad

No. Any amount withdrawn and not rolled over is considered a
distribution. You can not have it transfered to a "regular" account
with future capital gain treatment.

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That'd be great if I could do it, but I think it's out. I don't presently
have anything in pretax IRA, but the rollover opportunity is unitary. I roll
it all or I roll none of it. If I roll it all, the After Tax contributions
are only about 6 or 7% of the balance. The other 93 or 94% will be pre-tax
IRA when the rollover is complete.

Back to the original question: any thoughts on how to pick the optimum
choice given the tradeoffs? Do I have the right issues identified?

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:PRPph.44254$wc5.28647[at]newssvr25.news.prodigy.net...
- quote -

Tad Borek <borekfm[at]pacbell.net> wrote in
news:PRPph.44254$wc5.28647[at]newssvr25.news.prodigy.net:

- quote -

snip

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This is my understanding and impression as well.

John

Dick Watson wrote:
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This one is so obscure I haven't researched the details for it, but it's
possible you could be one of the small number of people capable of doing
a nice tax trick, either now or in 2010. The "trick" is, moving the
after-tax dollars ONLY to a rollover IRA, and converting that IRA to a
Roth IRA, avoiding all future income taxes on those dollars. It works
best if you have little/no pre-tax dollars in IRAs at the moment.

There are two ways of getting money into a Roth, contributions or
conversions. In the latter, you convert a traditional/rollover IRA to a
Roth, by filling out some forms and paying taxes. If you convert $20,000
in Trad-IRA dollars you just add $20k to your income, and pay federal
and state income taxes on it. But you only pay taxes on the pre-tax
portion of that $20k.

So here's why the trick would be very beneficial...it seems possible
that you could open an IRA to receive the after-tax contributions from
your 401k, with the rest (the before-tax portion of the 401k) being
transferred to your new employer's 401k plan. This is the key step and
I'm not positive you can do it.

You would then do a Roth conversion on your IRA (either now or in 2010),
and pay tax on that conversion. Which is zero! If your IRA contains only
after-tax contributions (the proceeds from this rollover), there would
be no tax on. If you need to wait until 2010 you'd just pay tax on the
income between the rollover and the conversion, which probably won't be
too much. Just by filing some forms you'd turn all future gains on this
lump of money into tax-free gains. Given that you said the amount is
"substantial" this could be an enormous benefit over the long haul.

Having other IRA dollars blows this out of the water. Even if you opened
an account containing only these pre-tax rollover dollars, the Roth
conversion would look at all of your IRA dollars combined to determined
the taxable amount of the conversion. If 1/2 of your IRA dollars are
pre-tax, half of your conversion would be considered taxable, regardless
of where the money came from.

-Tad

I am about to get traded to a new employer. This will allow me to rollover
the 401(k) from my current employer. This account has a significant amount
of after tax contributions in it. My understanding is that I can choose to
move this money to a regular taxable account or roll it over to an IRA.

In the first case, I could ideally put it to work hopefully nothing but
unrealized long term capital gain and, at some point in the future, pay
taxes on that gain at the investor-advantaged rate for long term capital
gains. More likely, along the way I'd earn some dividends, and long and
short-term capital gains. I'd have to pay taxes at rates based on my income
along the way, but hopefully the dividends would mostly be qualified for the
investor-advantaged tax rate and the long term capital gains would also get
the investor-advantaged rates.

In the second case, everything I earn on it going forward would eventually
get taxed as ordinary income at the tax rate I'm paying when I take it out.

So I have two questions:

1) Have I identified the right choices and associated issues?

2) Is there any strategy or tool to help identify the best choice? Near as I
can tell, there is almost no way to tell. What are my tax rates along the
way? What are my tax rates when I take the IRA distribution in the future?
If I go the taxable investment route, what do my investment choices do along
the way in terms of dividends and realized gains? Can I pick better
investment choices for gains in the IRA if I don't worry about how much
income is shed along the way? Do tax laws continue to favor investment
income over ordinary income? Do tax rates change?

Any thoughts?