Last week, the Internal Revenue Service provided guidance that permits employees to roll over their after-tax contributions directly into a Roth IRA, tax-free. This ruling applies to rollovers from 401(k), 403(b) or 457 plans.
You can read Notice 2014-54 “Guidance on Allocation of After-Tax Amounts to Rollovers” at http://www.irs.gov/pub/irs-drop/n-14-54.pdf.
The notice states: “The applicability date of the regulations is proposed to be Jan. 1, 2015. However, in accordance with § 7805(b)(7), taxpayers are permitted to apply the proposed regulations to distributions made before the applicability date, so long as such earlier distributions are made on or after Sept. 18, 2014."
Here’s an example of how it would work:
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