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I made the mistake of not separating my pre and post tax 401(k) contributions while working. I am now retired and I want to know how and if I can take the approximately $75K (actual after tax contributions) out of my $1MM+ IRA and put into a Roth IRA now ? If so, what do I need to do?

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    Your 401k custodian should have kept the Traditional 401k, Roth 401k, and employer match accounts separate. If you rolled over everything into a Traditional IRA, then you should have a basis in the IRA. Do you? But, in any case, you cannot withdraw only the basis or post tax part of your IRA; any withdrawals are proportionately from the taxable part and the non taxable part of the IRA, and you will have to pay taxes on the taxable part if you want to roll it over to a Roth IRA l. – Dilip Sarwate Nov 4 '16 at 13:01
  • My 401K was with Vanguard............I remember they segregated the amounts in charting my contributions, but they all went into a traditional 401K. My fault for not naming my after tax contributions into a Roth........So, it looks like I am screwed now and all distributions from my IRA will be taxed. Nice $15-20k screw-up...hopefully others in the future will read this post and learn what not to do. – Frank Nov 4 '16 at 13:48
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    Look at the paperwork from the Tax Year when you rolled over the 401k to the IRA, especially the 1099R from the Vanguard 401k, and Form 8606 (both items are likely attached to your Federal 1040 tax return) for that year. If you are lucky, the 1099R would have indicated that you had $75K of after-tax contributions in the money rolled over, and you would have filed a Form 8606 that year on which it was noted that you had a basis of $75K in your new (Rollover) IRA. If so, that is all you need. Don't ask your IRA custodian; they don't keep track of your basis, but look in your tax return files. – Dilip Sarwate Nov 4 '16 at 20:49
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    This is really a question for Vanguard and/or your IRA provider. They can look at the history and sort this stuff out. It's going to be a hassle with lots of phone calls and paperwork perhaps. Worst case scenario you will need to hire a CPA to help you and possibly send some information to the IRS. I highly doubt that some error on your part will mean that you will need to pay taxes on Roth contributions. – farnsy Nov 4 '16 at 22:11
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    @Frank: It's not necessarily your fault; some 401k plans don't have Roth. And there are other benefits to after-tax Traditional contributions like they are not subject to the $18k/year limit. Also, even if you had pre-tax and post-tax amounts in your Traditional 401k, since Sept 2014, you have been able to split pre-tax and post-tax amounts when you rollover out of Traditional 401k and have the pre-tax part go into Traditional IRA and the post-tax part go into Roth IRA. But that is a moot point now. – user102008 Nov 5 '16 at 6:07
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From your description, it seems that you should have $75k of "basis" (i.e. after-tax amount) in your Traditional IRA. (As others have mentioned in comments, you might have had to report this in the year it was rolled over. I will assume that you will have figured this out.)

Having after-tax amounts in a Traditional IRA is tricky as you usually can't choose to take out only the after-tax portion. Withdrawals as well as conversions to Roth IRA must be "pro-rata", which means that the amount of pre-tax and post-tax money in the withdrawal or conversion follows the same proportion as in the IRA overall. So say 7.5% of your Traditional IRA is after-tax, and the other 92.5% is pre-tax, that means any withdrawal will consist of pre-tax and post-tax in those proportions. So e.g. if you withdraw or convert $1000, $75 will be post-tax and $925 will be pre-tax. So any withdrawal or conversion will consist overwhelmingly of pre-tax amounts, which will be taxed, and you may not want that at this time.

There is one way to separate the pre-tax and post-tax amounts in a Traditional IRA, but it involves having an active 401(k) (which I doubt you have at this point as you're retired). Some 401(k) plans allow people to rollover funds from Traditional IRA into it. If they allow this, then you can use it to "siphon" only pre-tax money from the Traditional IRA, as IRS does not allow rollover of post-tax money into a 401(k). This way you can rollover the entire pre-tax amount of the Traditional IRA into the Traditional 401(k), leaving behind only after-tax money in the Traditional IRA, which you can immediately convert to Roth IRA with no tax.

  • One thing to keep in mind is that the basis is part of the entire IRA, not just the specific account that holds the funds rolled over from the 401k. This applies to the first two paragraphs of the above answer; any distributions from any of the IRA investments are part non taxable, not just a withdrawal from the investment of that 401k money into an IRA account. – Dilip Sarwate Nov 5 '16 at 16:33

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