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You were counseled correctly. Aftertax contributions are not rollable because they were aftertax; thus the only thing they can do is to give them back to you. Further, they are not taxed because they already were taxed previously. Lastly, a 10% penalty is only assessed on early withdrawals "to the extent that they are includable in gross income". Since the return of the aftertax contributions are tax free, e.f. they are not includible in gross income; therefore no penalty.

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