After Tax 401K

Submitted by Ayman Ibrahim on Sat, 2022-06-25 20:13

Just wanted to confirm the following regarding After Tax 401K contributions:
1- The withdrawals are subject to the 10% penalty if taken before age 59 1/2. (Are there any exceptions to waive the penalty?)
2- The withdrawals are taxed as ordinary income on the earning only if taken after reaching age 59 1/2.
3- It can be rolled over to Roth IRA in 2022. (If yes, what is the tax treatment of the earnings? Is the earning is taxed or not?)
Thanks



Submitted by Alan - IRA critic on Sat, 2022-06-25 20:57

  1. The 10% penalty would only apply to the taxable amount, which is the earnings on the after tax contributions. There are several penalty exceptions such as disability, separation from service at 55,  high unreimbursed medical expenses, SEPP distributions, etc.
  2. Correct.
  3. Rollovers to the Roth 401k or Roth IRA generate tax but no penalty on the amount of earnings converted.


Submitted by Ayman Ibrahim on Sun, 2022-06-26 14:21

Thanks Alon so much for your quick response.Just to confirm regarding number #3, the taxation for the rollover form after tax 401k to Roth IRA or Roth 401k is only on the earning amount. Correct?



Submitted by Alan - IRA critic on Sun, 2022-06-26 14:23

Yes, that is correct.



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