Nassau Posted May 23, 2013 Posted May 23, 2013 When a participant request an after-tax withdrawal are investment earnings included in amount distributed? If so, am I correct that the Investment earnings withdrawn from the plan are subject to federal (and possibly state) income tax?
masteff Posted May 23, 2013 Posted May 23, 2013 If you go back to IRS Pub 575 from 1994, on page 12 it discusses that 1986 is when the rules changed over on whether earnings had to be allocated to a distribution of after-tax money. So if you have pre-87 money, then you can take basis out first and have no taxable income. But if you have post-86 money, then you must take earnings ratably with basis, resulting in it being partially taxable. See pages 16-17 of current Pub 575. 1994: http://www.irs.gov/pub/irs-prior/p575--1994.pdf Current: http://www.irs.gov/pub/irs-pdf/p575.pdf Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
joel Posted May 23, 2013 Posted May 23, 2013 Why not rollover the cost basis to a Roth IRA and the earnings portion to a traditional IRA? Note: The current Pub. 575 makes no mention of this option.
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now