Question

distribution of an after-tax contribution to 401(k) - not rolled over into IRA

Forum|Forum|2 years ago
May 19, 2024
1 reply
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I made a combination of pre-tax and after-tax contributions to a fidelity 401(k) plan. I recently closed the account and took the following actions:

Pre-tax contributions were rolled over into a traditional IRA
After-tax contributions (approximately $10k) were not rolled into an IRA. Instead, I took a full distribution of the after-tax amount (i.e. got a check).

My scenario is similar to the example on this page:
https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans

Do I owe taxes on the after-tax contributions? I already paid taxes on these before the original contribution to the 401(k) plan was made.

Fidelity sent me a 1099-R, which lists the

Taxable amount (box 2a) as $0.00
Distribution code (box 7) as "1" (early distribution, no exception)

However, the IRS sent me a letter stating that I need to pay taxes on the $10K after-tax contribution as if it was regular income.

I am not 59 1/2.

D

dmertz

Employee

The $0 in box 2a of this Form 1099-R makes sense only if it reports just the distribution of the $10k of after-tax funds and includes $10k in boxes 1 and 5.

T

taxpayer1040aAuthor

yes, that's correct. I received a separate 1099-R for the after-tax contribution. It lists the $10K in boxes 1 and 5.

1 $10K
2a Taxable amount = $0.00
3 Capital gain = $0.00
4 Federal tax withheld = $0.00
5 Employee contribution = $10K
6 Net realized appreciation = $0
7 Distribution Code = 1
14 State tax withheld = $0.00

D

dmertz

Employee

In that case, it properly reports a nontaxable distribution of the after-tax funds (and because it's nontaxable, it is also not subject to any early-distribution penalty). The IRS should not be claiming otherwise.

It was required to be reported on your tax return with the $10k included on Form 1040 line 5a but excluded from line 5b. If you did not include it, that might have triggered an examination and the examiner incorrectly believed that the distribution was taxable.