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"401(a) Plan"???


Guest barkley

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Guest barkley

My husband swears that he had a "401(a) Plan" at his prior company. I tried to explain to him that this just covers the qualified status of the plan. He has been told repeatedly that "401(a)" is the plan type. The plan consisted of his after-tax contributions and the 6% company match on those. When he terminated, it was not permissable at the time to roll over his after-tax contributions (he was told that the rules have now changed). So, he rolled over the company match portion & earnings and withdrew his after-tax amount and now is being faced with the 10% penalty.

Has anyone heard of such a plan?

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Yes. But don't be mislead; "401(k)" is merely a special feature that can apply to a 401(a) plan.

The plan you describe - after-tax contribs + match - is what we used to call a "thrift plan" (actually, we still call it that). It precedes what is now known univerally as "401(k)", which is not a plan type but a plan provision that permits pre-tax contributions.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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A 401(a) plan refers to any qualified plan. From your description your husbands contributions were made to a form of qualified plan called a "thrift plan" in which employees made after tax contributions which were matched by employer contributions. The distribution can rolled over to an IRA or retirement plan. If he rolled over the employer contributions and the earnings there is no tax on the withdrawal of after tax contributions. However, he will be taxed on any earnings on the after tax amounts which are not rolled over to an IRA or retirement plan.

mjb

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To clarify rollover Q, after-tax rollovers are now permitted, under 2001 tax law change. Prior to that, after-tax amounts were never eligible for a rollover.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest barkley

He took out his after-tax money prior to the 2001 tax law change allowing for rollovers. Is he subject to the 10% early withdrawl penalty on this after-tax distribution?

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You can also see "Tax on Early Distributions" on page 27 of this IRS publication:

http://www.irs.gov/pub/irs-pdf/p575.pdf

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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