403(b) plan with 100% non-deductible contributions
Looking for some direction. I believe IRS Notice 2014-54 applies here, but a CPA is saying otherwise.
Plan participant is over 59.5 and plan allows in-service distributions. 100% of the contributions are non-deductible contributions in a traditional 403(b) plan.
The CPA is saying that since there are no pre-tax contributions that Notice 2014-54 doesn’t apply. He is saying that she needs to treat the gains, approximately $10k, as taxable income on the conversion.
Is this accurate? My belief is she shouldn’t have to pay tax on the gain. Thanks for your guidance!
Permalink Submitted by Alan - IRA critic on Sun, 2015-02-22 00:18
You are correct. The Notice can be applied to partial distributions as well as lump sum distributions, and to in service distributions as well as post separation distributions if the direct rollovers are done correctly. Basis in employer plans can be isolated and directly rolled to a Roth IRA while pre tax amounts and earnings can be directly rolled to a TIRA. In this case, the gains are taxable only if they are rolled to a Roth IRA along with the basis. Is the plan participant only tapping an after tax sub account balance here?