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Hmmm. I have an IRA with Westinghouse which has both pre- and after-tax contributions. I would like to roll it over to a self directed IRA, but I have been told by two people now that a) the after-tax monies cannot be put back into an IRA, and b) I will owe taxes on the appreciated amount (as you say) but I will also be penalized for a "premature withdrawal", since the money can't be IRA'd. (The IRA is about 4/5 pre- and about 1/5 after-tax, by percentage.) Any comments about this? I feel like the money is "trapped" for another decade unless I want to pay the taxes (that part is OK with me) AND the penalties (which is not OK IMO.)

We may have a bit of symantics difficulty here. If you have an account with Westinghouse (as in the company and your ex-employer) it is not an IRA account; it is a §401(a)-(k) qualified plan account which could in its time have all different kids of features including the ability for you to contribute both before-tax and after-tax dollars. If this is what oyu have then: thin of the account as having four different types / sources of money forgetting for the moment how it really invested: before-tax contributions; earnings on b/t contribs; after-tax contributions; and earnings on the a/t contrib's. If you roll this account from Westinghouse to an IRA (lest's say at the discount broker of your choice) only three of four money types are rollable. Everything rolls to the IRA except the after-tax contributions.

The after-tax contributions are not rollable. Instead, they must be returned to you; however, this is akin the a return of principal in that it is non-taxable event; e.g. you pay not tax on the amounts returned to you. If you think about it for a moment this actually makes sense in that, by their nature as after-tax contributions; you already paid taxes on these dollars some years ago; thus no tax this time.

Regular tax & penalties would only apply if you withdrew from the other three "money types" & did not roll those dollars into a rollover IRA account.


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