are you asking if the IRS has a way of telling which dollars are pre/post tax?
They should tracked as separate sources by the Plan record keeper.
When you eventually distribute the Pre-Tax portion all of it will be taxed as ordinary income in the year received. And if not 59.5 subject to 10% penalty.
When you eventually distribute the ROTH portion none will taxable if you are over 59.5 and it’s been at least 5 years since your first deposit. If you don’t meet the definition of “qualified ROTH” distribution then the gains are taxed but the basis is not.
There are some exceptions but this is most common scenarios.
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If the post-tax are in a Roth 401K (perhaps they must be) then as yankee tripper said about that, typically distributions after 59.5 are not taxed. By analogy to IRA, I was assuming that post-tax contributions to a non-Roth 401K were possible.
Nitpick: there are certain exceptions to the 59.5 rule. Things Congress deems “acceptable” reasons to pull your retirement money early. Medical bills, up to $10K for a first-time homebuyer, college tuition, substantially equal payments, a few others.
If you are under 59.5 on the day you withdraw the money and you qualify for an exception… DO tell your provider as they will put a different code on your 1099 that makes it not subject to the penalty. If you qualify for an exception but don’t tell your provider then the tax software will default to applying the 10% penalty, and the IRS will assume you are subject to it unless you include an explanation with your taxes of why you don’t have to pay it. It’s easier to have the plan administrator just put the “exception applies” code on the 1099.
let’s say you have z=x+y in your 401k
x is pretax and y is post tax
then in 30 yrs its retirement and time to withdraw and acc value is z1
is x1 and y1 just the same proportion as x and y?
or do they keep track of exactly how x and y were invested?
right now my 401k is pretax, but gonna switch to roth, and looks like all funds will go in the same bucket
My 401k had different accounts for roth vs not roth. My vanguard account is similar. x will grow to x1 and you’ll know that because it’s in a separate account from y1.
It’s kind of like if you invested your roth money with a completely different investment company.
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ah that would make sense. Hope my account does that (transamerica)
Nitpick²: You do have to pay income tax on early-withdrawal-amounts that are above your basis, but, as twig93 noted, you won’t have to pay a penalty. (More of a clarification/keep-in-mind than a nitpick, but meh.)
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I only invest in roth in my transamerica, but here’s a snapshot of the summary screen:
So, with near-100% certainty, since they label my 401k as “roth” I would say that they do distinguish b/t the two.
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that’s why i said exceptions apply but what i described was “most common”.
and rules for qualified retirement plans like a 401(k) are similar to rules for IRAs but they are not always the same and sometimes different exceptions apply depending on where it is coming from.
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[rant]
More Vanguard bad customer service. Nothing to do with Roth vs Traditional IRA, but I was complaining about it here before, so why not again. Both these involve trying to communicate with them through the secure mail feature on their website.
First, one where the amount is so trivial that I had forgotten about it. I got too contradictory pieces of tax info from them regarding their STAR fund (a balanced fund). One said 0.01% (yes, far less than 1%; I said it was trivial) of the STAR fund’s 2021 income was from federal government obligations. They other said 0.04%. This matters only because income on federal government obligations would not be taxable for state tax purposes in PA. I don’t have much in STAR. I just wanted to be ready in case PA asked about my adjustment to federal income. So on Feb 6 I asked Vanguard, by secure message. No response yet.
Second, with over $10,000 involved, and a comedy of errors. Without going into irrelevant details, in June 2021 I wanted to transfer around $11,000 worth of Vanguard to a different Vanguard account, not one I owned. I didn’t notice, at the time, that Vanguard screwed up and did the transfer twice the same day, and confirmed it twice, but on the same confirmation. I did notice, about a month later, that without any additional explanation, they reversed the transfer. WTF? I had wanted the transfer. So I contacted them (don’t remember if it was by phone or secure mail, probably by phone.) Answer, which satisfied me at the time was that they realized they have goofed and done it twice, so they reversed one, leaving the one I wanted. So far, so good.
But in working on this year’s taxes, I had some additional questions about it, primarily the number of the Vanguard account the money went to. It’s a number I had to give them for the initial transfer, but which I didn’t remember, and the confirmation just says “transfer to another Vanguard account”. So Friday afternoon, at 3:25, I sent a secure message asking for that account number. I promptly got this automatic response “Our customer service professionals are available to respond to emails on weekdays from 8 a.m. to 8 p.m., Eastern time. Emails received on weekends, holidays, or after 8 p.m. will require additional response time.”
OK, even though it should have been a very easy question I can understand that they didn’t answer it Friday. But unless Valentine’s Day is a customer service holiday at Vanguard, the additional 12 hours should have been plenty. Yet I still have heard nothing.
[/rant]
did you initiate the transfer online?
It was initiated by phone. There may have been an online form to be completed during the process. I’m not sure.
yeah I wouldn’t trust those bozos over the phone
that process is too prone to human error
Finally this afternoon I got the response to the secure message. The response really surprised me and I think is wrong. Probably I’ll post a little more about it tomorrow after I’ve done a little more research on my end, and maybe calling Vanguard. (The transaction was slightly more complicated than originally described: intended two transfers out, one by me, one by my wife, same day. Vanguard did 4, and reversed 2. So net effect on us is OK.)
OK, not waiting until tomorrow, and haven’t spoken to Vanguard. Here’s there answer, with some comments added. The actual situation is even more screwed up than I’m still indicating here, so I don’t think I’ll be posting any further details, including what Vanguard says tomorrow. Just this e-mail (with the comments I’m adding on it in color, make it clear they screwed up in what they said in the response.)
All colored font in the response is comments added by me, now.
Strange situation. Has this cost you anything? Or is this just a confusing situation?
If the question were “has this cost you anything yet?” The answer is definitely no. However, while I don’t want to discuss particulars, I need to file a gift tax return for 2021. I need to file regardless of that transaction, but the filing has different numbers depending on what happens with that transaction. No current tax either way, but potential eventual estate tax. Wouldn’t be any estate tax if I were to die tomorrow, under current estate tax laws (deductible estate size), but who knows what the laws will be when I do eventually die. Under almost any conceivable future tax law, future estate tax would be lower (if taxable at all) if the transaction is handled the way I wanted.
Got it. Sounds like it will ultimately be sorted out to work out the same, though that’s not entirely clear. At least this didn’t cost you anything in the moment, as that would be a battle to sort out. If for example, the money sat uninvested for this period between transaction and correction and the market went up 5% during that time, or something.
OK, finally straightened out. Vanguard had messed it up FAR worse than I had realized. In fact, the first four transactions in June had been processed exactly as we requested (Slightly surprising to me, as thinking about it now wife and I both think we would have requested only two transfers, but we both know why we might have requested four and if that’s what they say the recorded calls show, we believe it. They also say all four transfers were requested on one call, and we had felt sure that all requests whether two or four would have been on one call.)
They agree we requested no reversals in July, as I was sure we had not. The two July reversals were initiated by Vanguard (as I knew), but because they thought they had made a mistake, not because they had made a mistake. So now they are going to fix them to match what we requested, canceling the two July reversals.
So, without going into greater detail, because there are some elements I’m being a little vague on for privacy reasons:
- Vanguard’s error did have some immediate financial impact on us, but favorable, since we had transferred out less assets than intended. In most situations this would have been somewhat serious (over $1000 of loss to someone).
- In this particular case, account XXX is owned by a close relative, and making only two transfers instead of four hurt that relative by exactly the same amount as it helped us. So no net harm to the extended family, at least pretax.
- Now, after the fix, both we and the owner of XXX will be in exactly the position we intended at the time, which is a good result.
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