Advisors take note: the Internal Revenue Service on Thursday issued long-awaited guidance on the allocation of after-tax amounts to rollovers.
IRA guru Ed Slott told ThinkAdvisor on Thursday that the IRS’ guidance answers one of the most common, if not the most common, question that he gets from advisors.
The question: “A lot of people have after-tax money in a 401(k) — they have pretax and after-tax money. When they take a distribution, can they take the after-tax money and convert to a Roth IRA tax-free?”
The IRS’ answer: yes.
“This was an open question for years and years, and today it has been resolved,” Slott, who runs irahelp website, said. “This only applies to distributions where there is after-tax money, effective today.”
The IRS guidance, Notice 2014-54, notes that these rules also apply to disbursements from 403(b) or 457 plans.