401k/IRA/Tax Question

Taribor · #1 (**permalink**) 01-13-2008, 08:23 PM

Hey everyone, I would appreciate any input on this one:

At my previous job I had a 401k funded roughly 50/50 with PRE and POST tax earnings.

I started a new career and rolled the 401k into an IRA, and then converted that over to a Roth.

I know I owe taxes, i'm just not exactly sure on what:

-I owe on the pre-tax contributions
-I assume I do not owe on post tax contributions
-Do I owe tax on the company matching funds?
-Do I owe tax on the actual gains?

MonkeyMama · #2 (**permalink**) 01-14-2008, 07:17 AM

Yes, you owe taxes on the pre-tax-contributions, matching fund, and the gains.

In an ALL pre-tax situation you just tax the entire balance on date of transfer (fair market value).

When pre-tax money and post-tax money is mixed, it gets more sticky. There is a formula where a percentage of the balance is not taxed and a percentage will be. Also, keep in mind, the percentage is based on ALL of your IRAs. It's complicated and I don't remember off the top of my head. The less IRAs you have the lower the tax will be. That is what I am recalling. Because say you have $5k post-tax and $95k pre-tax in all of your IRAs. Then only 5% (5/100) of that one IRA will be considered non-taxable in conversion.

If that is your only IRA then that will be okay. But if i wasn't, you would be taxed on 95% of it, in this example, even though say only 50% of the balance in that one IRA (rolled to ROTH) is technically taxable.

Basically, if that is your only IRA, it will be fairly taxed. If not you might owe a lot more than you expected.

atomicrc11 · #3 (**permalink**) 01-14-2008, 08:01 AM

Was part of this a Roth 401k? As far as I know, prior to the Roth 401k, all 401k contributions were pre-tax. I could be wrong.

Any way, you will owe tax on all contributions from you and your employer that were pre-tax and all your earnings.

sweeps · #4 (**permalink**) 01-14-2008, 08:36 AM

Quote:

Originally Posted by atomicrc11

Was part of this a Roth 401k? As far as I know, prior to the Roth 401k, all 401k contributions were pre-tax. I could be wrong.

No, many 401k plans (mine included) allow post-tax contributions -- this is unrelated to the Roth 401k (and existed before the Roth 401k even existed). It's a bad deal really. I don't know why anyone would do it.