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Refund of employee's post-tax contribution at death


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A governmental plan requires employees to contribute to the Plan post tax.  The monthly benefit reflects both the taxable and non-taxable portions and are reported appropriately.

 If a retiree dies before receiving benefits equal to his or her contributions (plus interest at the plan's rate), then his or her beneficiary receives a refund equal to the difference between the total benefit received and the retiree's post-tax contributions (plus interest).  Is this refund taxable?  How is the refund reported to the beneficiary?

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You need to look at the Section 72 regs. I would expect that if there is a lump sum refund of contributions on death, then the remaining basis is all recovered (i.e., sum of all post-tax contributions, minus amounts previously recovered under Section 72). But I can't quote you the provision. Again, it should be in the Section 72 regs.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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