After tax dollars in a 401k plan.

[Guest Denise Murphy]

Client was under the age of 55, retired from her employer. The 401k plan has before and after tax contributions. The before tax dollars and all earnings are going to an IRA. The after tax dollars can not be rolled, but what about the 10% penalty? A CPA is stating that she is subject to the penalty because she didn't retire at age 55 or any other 10% penalty exception.

[LCARUSI]

There is no 10% tax on after-tax contributions, regardless of age. They are not taxable and therefore there is no penalty tax to be applied.

[Guest John McCrary]

Right...because it is after-tax money, there is no 10% penalty. Just to make the CPA happy, I bet the Plan Document has a provision to allow inservice withdrawals of the after-tax money and it will sometimes give you the "not subject to 10% penalty" disclaimer.