Author Topic: Pre and post tax in 401a  (Read 1313 times)

SailAway

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Pre and post tax in 401a
« on: September 24, 2014, 09:29:34 AM »
Had a benefits meeting at work today. Was planning on making some changes.

Talked to a representative for my pension. Currently I'm contributing 3% pre-tax (mandatory, no more, no less) and 10% post-tax (the max allowed). I plan on separating from service in 12 years when I am 50. I'd then like to split my rollover into a Roth and traditional IRA. The rep told me they couldn't do that, that it all goes into the same pot, they couldn't separate it and it would all be subject to tax on distribution.

This was not the impression I had gotten from the website:

Post-Tax Voluntary Contributions

When you make post-tax voluntary contributions, federal, state and Social Security taxes have already been withheld. Your take home pay would be reduced by the total amount contributed. Since these funds have already been taxed, they will not be taxed again; however, it is important to note that any earnings or interest accrued on these funds are still taxable.

If you are not vested at the time of distribution, the non-taxable benefit will be paid directly to you in a lump sum or you can elect to roll over the non-taxable amount in some cases. If you are vested at the time of distribution, IRS regulations mandate that a portion of your non-taxable benefit must be recovered over the life of the pension.

A portion of each monthly pension payment will be non-taxable until your entire post-tax voluntary contribution amount has been recovered.

For you to make post-tax voluntary contributions, your employer must simply agree to deduct the amount requested (up to ten percent [10%]). That money is then sent to PERF as a contribution to your ASA. You may choose to stop making post-tax voluntary contributions or change the amount deducted at any time.

Taxable Portion - Direct Rollover
You may elect to have all or part of the taxable portion of your ASA paid in the form of a direct rollover into an eligible 401(a), 403(b) or governmental 457(b) plan, or Traditional or Roth IRA, which has provisions allowing it to accept the rollover on your behalf. Except in the case of a Roth IRA, this option defers any taxes you owe on your ASA balance.

If you choose to roll over only part of the taxable amount, the portion not rolled over is paid directly to you (less the mandatory twenty percent [20%] withholding for federal income tax).

If you choose to take a rollover distribution and do not complete the rollover by the 60th day following the day on which you receive the distribution, your distribution may be subject to taxes and/or penalties unless you qualify for a waiver. Please consult your tax professional for waiver qualifications.

Non-Taxable Portion Direct Rollover
You may elect to have all or part of the non-taxable portion of your ASA paid in the form of a direct rollover into an eligible qualified plan, 403(b) plan, or Traditional or Roth IRA, which has provisions allowing it to accept the rollover on your behalf. If you choose to roll over only part of the non-taxable amount, the portion not rolled over is paid directly to you.

Sigh. Did she just not know what she was talking about? I was already thinking of stopping my post-tax contributions and contributing to the 457b instead. The 457b is administered by Great West and I'm not thrilled with their fees or fund choices but i think it's still the better option. I'm actually trying to get the state to change to a lower cost plan administrator, but it's the state, so I don't have high hopes.