Distributions of voluntary after-tax contributions

[Guest bgiles]

Can you distribute earnings for an in-service withdrawal of after-tax voluntary contributions? How do you report a distribution of after-tax voluntary employee contribtutions on Form 1099-R? For instance, total after-tax account value is 10K, of which contributions are 8k and earnings are 2k. Can you only take the 8k in contributions as an in-service withdrawal of the after tax cont's? Because the part is under age 59 1/2, do you use code 1.

[Guest halka]

I believe that except for pre-1986 after-tax contributions you are required to allocate and include earnings on any withdrawal of after-tax contributions. Yes, you would use Code 1 if part is under 59-1/2.

[Tom Poje]

I don't know the cite on it, but you are required (unless they have changed the rules recently) to withdraw money pro rata. in other words, in your example, you will end up with 80% not taxable and 20% taxable. (Whatever amount is withdrawn)

[wmyer]

I agree with both replies. In the example given, you would report 10,000 as the gross distribution amount, 2,000 as the taxable amount, and 8,000 as employee contribution, distribution code 1. A participant under age 59 1/2 would generally have to pay a 10% penalty on the 2,000 earnings (Form 5329), but no penalty on the 8,000 basis. The 2,000 earnings could be rolled over within 60 days to an IRA or another qualified plan, to avoid penalty and taxes. However, there would be 20% mandatory withholding on the 2,000 earnings (federal) plus possible state withholding. There would of course be no federal withholding on the 8,000 basis.