After-Tax Earnings Distribution
Have a client who took a distribution from Thrift Savings Plan. Part of the plan included an After-Tax Contributions account worth about 36,000 (26,000 earnings and 10,000 contributions). The paperwork was completed to issue a check for the full amount vs distribution for the contributions and rollover for the earnings.
Just want to confirm that if the 26,000 in earnings is sent to the IRA within 60 days then that will qualify as a non-direct rollover and will eliminate the taxable distribution of the earnings. Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2020-05-27 17:33
Yes, that is correct. The first dollars rolled over are treated as the taxable amount so a rollover of 26,000 would elminate any taxes on the distribution. After rolling the 26,000 to a TIRA, client could also roll the rest (would have to replace any withholding on the distribution) to a Roth IRA. The TIRA rollover must be done first due to the “first dollars rolled over” rule stated above.