tax & coffee

Rollover of SOLELY after-tax amounts

6 posts in this topic

Mandatory employee contributions to a governmental 401(a) DB are after-tax. If an employee separates from service prior to becoming fully vested, they may elect to take an ERD of after-tax employee contributions (no employer contributions or earnings). Is the employee permitted to initiate a direct rollover to another eligible plan or IRA of these solely after-tax employee contributions?

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How would the pro rata rule apply in a scenario where the only amounts eligible to be rolled out are after-tax monies? The pre-tax earnings remain in the Fund due to the employee lacking sufficient creditable service to vest in employer contributions and any attributable earnings on in the Fund.

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It wouldn't. Assuming there is nothing to distribute other than basis (after tax employee contributions) then there is no pro-rata.

I make no statement as to whether it is permissible to pay zero interest on the accumulated employee contributions - that's a separate question, which some of the DB experts can doubtless answer.

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After reviewing the link provided in the previous post again it doesn't answer your question. 2014-54 also does not appear to answer your question. I guess a question could be asked of whether any interest was earned on the after-tax employee funds contributed? I see your point regarding the pro-rata rule; there is no ERD of other money.

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