Distribution of post tax dollars from 401(k)
I have a client age 43, who has a 401(k) that has pre and post tax money in it. He is rolling over the pretax portion. Can the client withdraw the post tax money without penalties?
I have a client age 43, who has a 401(k) that has pre and post tax money in it. He is rolling over the pretax portion. Can the client withdraw the post tax money without penalties?
Permalink Submitted by Alan - IRA critic on Thu, 2016-04-21 19:46
Yes, early distribution penalties only apply to the taxable portion of a distribution. The pre tax portion will be distributed by direct rollover so only the post tax amount will be distributed to client tax and penalty free. If client does not need the money right away, it may be better to consider a split rollover with the after tax money going to his Roth IRA. If he needs some of it later, distribution of a non taxable Roth rollover is not subject to the 5 year holding period in a Roth IRA to avoid a penalty since that only applies to taxable Roth rollovers.