Distribution basis recovery

[Sue H]

If an employee's recoverable contributions exceed the amount being distributed from post-tax accounts, is the recovered basis limited to the amount distributed from these accounts or can the participant recover the full amount?

For example, Jim has $1000 in recoverable contributions, but lost money in those accts so his ending balance is only $800. However, because his distribution includes pre-tax money, his total distribution is $2000. Would his taxable amount be $1200 or $1000?

(Assume the $1000 has already been established as the amount eligible for tax-free distribution.)

Thanks!

[LCARUSI]

Assuming this is a distribution of the participant's entire vested account balance, the taxable amount would be $1,000 (because the participant's cost basis is $1,000).

The only exception might be if the plan document contains specific language requiring tax calculations to be done on a separate contract basis. I haven't seen that in a long time and I don't know if it is even permissable any more.

[This message has been edited by LCARUSI (edited 04-20-99).]