Rollovers of After-Tax Contributions in Retirement Plans The law provides that if a participant’s account balance in a plan includes both pretax and after-tax amounts, then distributions from the account generally are considered to include a pro rata share of both pretax and after-tax amounts. For example, if your account balance is $100,000, and consists of $80,000 in pretax amounts and $20,000 in after-tax amounts, and you request a distribution of $50,000, your distribution would consist of $40,000 of pretax amounts and $10,000 of after-tax amounts. Prior to the issuance of Notice 2014-54, the IRS treated disbursements from a retirement plan that were rolled over to multiple destinations as separate distributions to each destination, with each distribution treated as containing a pro rata portion of the pretax and after-tax amounts. Notice 2014-54, which was issued September 18, 2014, provides that all disbursements from a retirement plan scheduled to be made at the same time are treated as a single distribution even if they are sent to multiple destinations. As a result of this notice, taxpayers with pretax and after-tax amounts in their plan, for example, can transfer through direct rollovers the pretax portion of the distribution (including earnings on after-tax amounts) to a traditional IRA and the after-tax portion of the distribution to a Roth IRA. (Previous interpretations allowed accomplishing this result through 60-day rollovers but not direct rollovers.) The guidance provided in Notice 2014-54 applies only to distributions from qualified plans described in section 401(a) of the Code (such as profit-sharing and 401(k) plans), section 403(b) plans and section 457(b) governmental plans. The guidance in Notice 2014-54 is generally effective January 1, 2015; however, transitional rules included in the guidance permit taxpayers to utilize the new rules provided in the guidance prior to the effective date. The guidance in Notice 2014-54 does not apply to distributions from IRAs.
Posted on: Tue, 23 Dec 2014 19:21:12 +0000
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