After Tax Contribuitons

[Guest moltengater]

Why would pre 87 after tax and post 86 after tax money be treated differntly - if at all - for tax purposes?

[Bird]

Pre-'87 contributions were fairly common since you could do something like 6% of pay and it didn't count against 415, and it didn't have to be in a 401(k) plan. If certain conditions are met, that money can be pulled out and the tax-free basis recovered all at once, instead of ratably as is the general rule.

I'm not sure if that answers the "why" part - I'm guessing that rule is an acknowledgement that the amounts are typically fairly small and it would be a nuisance to try to recover it ratably. (But it's hard to imagine Congress worrying about the nuisance factor, given other stuff that we have to do!)

[Appleby]

I think one primary difference is that distributions from a qualified plan that includes pre-tax and post-tax assets, will generally include a prorated amount of pre- and post tax assets... An exception applies to post-tax assets accrued pre-1987, where a participant may withdraw those amounts without the prorated treatment ( grandfathered rule) .

[J2D2]

I think the answer to the "why" part is that Congress (or IRS, I don't remember which) decided it should be that way. Don't mean to be flip, but have also been in the business long enough that I don't try to divine the reasoning behind the actions of the Solons of the Potomac (even with actions more recent than '86).

[Appleby]

I think the answer to the "why" part is that Congress (or IRS, I don't remember which) decided it should be that way. Don't mean to be flip, but have also been in the business long enough that I don't try to divine the reasoning behind the actions of the Solons of the Potomac (even with actions more recent than '86).

word!!!

[Kirk Maldonado]

Appleby:

Is the word "Congress?" (Because the grandfathering treatment was enacted by Congress?)

If that wasn't responsive to your post, could you be a bit more expansive in a subsequent post, clarifying your prior message? I appreciate concise posts, but I think you lost some clarity in your quest for brevity.

[Appleby]

Kirk,

I guess I have picked up some slang from my children…

"Word" just means that I agree with J2D2’s post. Instead of “word”, you may say, “ Ain’t that the truth”, or “ I am in total agreement with your comment”.

Almost every day a customer will ask us 'why is that so'… and mostly, as J2D2 indicated, the answer is simply because congress made it so.

Does that help to clarify my response?

[Blinky the 3-eyed Fish]

I think the children are picking up some old slang foshizzle. I remember Vanilla Ice saying, "Word to your mother" about 15 years ago.

P.S. No, I wasn't a fan.

[WDIK]

I thought that The Trashmen established in 1964 that the bird is the word.