MMC Benefits Handbook
Taxes on Withdrawals
A portion of your withdrawal may be non-taxable if it consists of traditional after-tax contributions, Roth 401(k) contributions or in-plan Roth conversion amounts. The remaining portion of your withdrawal is taxable, including:
- Any investment earnings on Roth 401(k) contributions, unless you have had a designated Roth account under the Plan (i.e., an in-plan Roth conversion account or, if earlier, a Roth 401(k) contribution account) for at least five years at the time of the withdrawal (note that in-service withdrawals of Roth 401(k) contributions are available only upon disability or attainment of age 59-1/2);
- Any investment earnings on in-plan Roth conversion amounts, in the case of an In-Plan Roth Conversion Withdrawal, unless (i) the withdrawal is made after you reach age 59-1/2 (or after you die or become disabled) and (ii) you have had a designated Roth account under the Plan for at least five years at the time of the withdrawal; and
- Any investment earnings on traditional after-tax contributions.
If your distribution includes traditional after-tax contributions made before 1987, they are deemed to be returned before any earnings. Otherwise, any distribution of traditional after-tax contributions will be deemed to include a proportionate share of any taxable earnings.
You may delay paying taxes by electing to roll over an in-service withdrawal to another employer's plan or IRA (financial hardship withdrawal distributions may not be rolled over). If you do not elect a direct rollover of your eligible amounts, the taxable portion is subject to 20% mandatory Federal income tax withholding. Also, the taxable portion may be subject to an additional 10% Federal early withdrawal tax if you have not reached age 59-1/2. In addition, if you take an In-Plan Roth Conversion Withdrawal less than five years from the date you made the in-plan Roth conversion, you must pay the 10% Federal early withdrawal tax on the investment earnings converted which was waived at the time you made the in-plan Roth conversion. If applicable, state taxes will be withheld for your withdrawal. Consult with a tax professional to find out exactly what taxes you have to pay.