Taxation of non-periodic payments after the Annuity Start Date

[Guest Bob Collins]

A participant in a qualified plan has who has an account balance of $200,000 has $21,000 of after-tax money and is age 70 when the MRD payments begin. The employee will recove $100 tax free ($21,000 divided by 210). When the participant is 72 he request a $10,000 distribution. At this time the after-tax contributions have been reduced to $17,500 and due to great investment performance the account value is $225,000.

How is the taxation of the $10,000 handled - is any of it treated as after-tax. Maybe 10,000 divided by 225,000 times 17,700?

[Guest]

I guess I'm not clear why you are using the statutory basis recovery rules. Are payments really being made as an annuity when the employee turned 70? Or is the employee merely taking periodic withdrawals? If it is the later, why don't the general basis recovery rules apply -- prorata or basis first if pre-87 monies are withdrawn?