Guest Sehrl Posted June 25, 2002 Posted June 25, 2002 Question regarding a Plan that allows for both after-tax and pre-tax contributions. A participant has contributed both pre-tax and after-tax funds for many years and is now withdrawing them. If the participant's after-tax basis is greater then the market value of the after-tax funds, can the additional basis be used to off set the taxable amount of the pre-tax portion of the distribution? I know this is an odd situation, but any thoughts are appreciated especially if you can point to guidance. Thanks.
MGB Posted June 25, 2002 Posted June 25, 2002 It is not an odd situation; it is very common. There is an after-tax basis that is recoverable. The amount of any "fund" associated with the after-tax contributions is irrelevant. The basis is in conjunction with the entire plan, not just some administrative bookkeeping of different funds. There is an exception to this. If the after-tax basis has been segregated into pre- and post-TRA'86 monies in order to retain the special rules from pre-TRA'86, then the funds associated with this are not commingled with the rest of the plan for this determination.
Guest Sehrl Posted June 25, 2002 Posted June 25, 2002 MGB: In your response, you refer to amounts in "funds". Can I assume you also mean "sources". So that it would be correct to say - the basis is in conjunction with the entire Plan, not just specific to certain sources of money (i.e. after tax source vrs employee deferrals or employer match buckets which are taxable). Just want to clarify.
Guest Harry O Posted June 25, 2002 Posted June 25, 2002 I think MGB asked the relevant question -- how does the plan account for after-tax contributions? Most DC plans track post-86 after-tax contributions (basis recovered prorata between post-86 conts. and earnings thereon) separately from pre-87 contributions (basis recovered on a FIFO method). What exactly is your employee withdrawing?
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