Post Tax

[Guest Frank Jackson]

This question has two parts. Has anyone heard of the fresh start calculation concerning after-tax contributions? How is it used? What plans could use it?

I have a plan that allows in-service withdrawals from the volunary post tax source but does not allow them from the mandatory. When calculating the taxable portion of the in service distribution should all post tax contributions be included in the calculation or only those associated with the voluntary source?

Thanks!

[MWeddell]

The fresh-start method of taxation allowed one to create a separate contract holding just pre-1987 after-tax contributions so that a participant could withdraw just those contributions first without touching the taxable investment earnings. See IRS Notice 87-13. I think plans have to specifically authorize the fresh start method, but I'm not an expert on it so see the IRS Notice I cited above.

I think the answer to your question is under the double contract method all after-tax contributions are examined together for computing what portion of the distribution is taxable.