After tax contributions in IRA and company plan
An individual has an IRA with after tax contributions and also has a profit sharing plan with the company in which they own 55%. First question: Am I correct that the profit sharing does not have to be aggregated when determining the taxable amount of distributions from the IRA? Second question: If the PS plan allows can we roll the taxable portion of the IRA to the PS Plan and then take out the balance which would be the after tax contributions?
Thanks for any input.
Permalink Submitted by Alan Spross on Thu, 2011-01-06 19:02
Correct. The basis % in the PSP and the IRA cannot be combined as long as there is a balance in both plans. The taxable amount of any distribution is determined only by the basis % of the plan that paid it.
Q 2) Yes, if the PSP will accept an IRA rollover, the total pre tax amount in all the individuals non Roth IRAs can be transferred to the plan leaving behind on the basis in the IRA as documented on Form 8606. The remaining amount can then be distributed tax free or even better, converted to a Roth IRA tax free. This can be done in the same year that the transfer to the PSP is completed, or later.
Permalink Submitted by Jamie Sledge on Thu, 2011-01-06 19:24
Thank you Alan-Oniras. I just wanted to make sure I was on the right path.