Post Tax distribution from 401K
I retired early this year at age 53. Because I do not plan to look for another job, I rolled my 401k into an IRA. The portion of my 401K that was [b]post[/b] tax was distributed to me (a substantial amount). I believe it also included all profits that were associated with those post tax contributions (I could be wrong on this). Some of the distribution was in cash, some in stock and some was in mutual funds.
How will this distribution show up on my 2006 income statement ? Capital gain ? Ordinary income ?
Should I be making quarterly payments in order to avoid under-withholding penalties ?
Permalink Submitted by Alan Spross on Tue, 2007-09-25 00:41
You need to carefully review your distribution papers to determine the tax status of these distributions before the 1099R forms come out in January. A distribution of after tax amounts does not include the earnings unless you asked for additional like kind asset distributions. For example company stock shares may be eligible for NUA treatment if they are deposited in kind to a taxable account. Is the stock company stock?
Until you determine the tax status of the entire distribution, you cannot estimate what your tax impact will be. The amount of the distribution allocated to after tax contributions will not be currently taxable.
The taxable portion will be taxed at ordinary income rates, except for any amount of company shares attributed to NUA will be taxed at the LT cap gain rate in the year you sell the shares to the extent of gains that occurred while still in the plan. Once you know the amount of additional taxable income associated with the distribution, you can calculate the amount of estimated taxes you should send in now and on January 15th.
The amount taxable as ordinary income will also be subject to the 10% early withdrawal penalty. How much in the way of withholding was taken out of this distribution?