After-Tax Basis Recovery

[Guest Frank Jackson]

A client of mine wants to recommend the following for employees that take after-tax withdrawals:

Take a distribtuion of after-tax money from the plan and rollover the taxable portion back to the plan thus avoiding any taxation. This will circumvent the recovery rules.

Is this legal? Would you recommned this process? Has the IRS ever addressed this?

Thanks!

[MWeddell]

I think this works, but haven't heard much discussion about this since shortly after the direct rollover regulations first came out back in 1992.

I can't tell you whether the IRS has a more recent position. I'd be interested in reading others' views too.