Welp. Talked to the state and the town. All my contributions have been made after tax. Not Roth, just after tax. So I'll still be taxed on earnings when I withdraw. Apparently after tax mandatory contributions are unusual but they are allowed and that's how the clerk-treasurer decided to make them. I'm not happy, but it is what it is.
However, this on the website concerns me:
Any contributions to your ASA made with after-tax dollars are considered “tax basis” because you have already paid taxes on those dollars. Mandatory contributions paid by your employer were not taxed at the time they were paid. Therefore, they do not create “tax basis”. Upon retirement, any after-tax contribution (your tax basis) is reported by PERF as non-taxable on the IRS Form 1099-R issued to retired members and the IRS. However, it is important to note that your tax basis is recoverable under very specific IRS rules. The following briefly outlines the basis recovery rules applicable to your situation.
You can elect to receive a total distribution of your ASA at the same time you begin receiving your monthly pension benefit. However, if you elect to do so, federal tax law does not allow you to immediately recover your entire basis when you receive your ASA. Instead, part of the basis has to be allocated to the monthly pension benefits. The basis allocated to the monthly pension payment is divided up and recovered over a mandatory number of monthly payments, as determined by applicable IRS regulations. Therefore, a portion of each monthly benefit paid to you is non-taxable, for as long as basis remains.
This division of the basis is required because the IRS has issued a private letter ruling to PERF concluding that the ASA and monthly pension benefits payable to you do not constitute separate accounts. The consequence of this ruling is that, upon retirement, basis from contributions to the ASA must be partially allocated to your pension benefit, as we have described above. One exception to this basis allocation rule is also relevant: a special provision of federal tax law permits you to immediately recover any tax basis that you may have had in your ASA on Dec. 31, 1986. The post-1986 basis, however, may be partially recovered with the remainder allocated to your monthly retirement benefits.
Can anyone decipher for me? I can't find any more about the private letter ruling. It sounds like a portion of my contributions will have to be rolled into my defined benefit.