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, Roth rollover 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 satisfy the required five taxable year period for a qualified distribution, as described below (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 Roth rollover contributions that were directly rolled over from another 401(k) plan, section 403(b) plan or governmental section 457(b) plan, unless (i) the withdrawal is made after you reach age 59-1/2 (or after you die or become disabled) and (ii) you satisfy the required five taxable year period for a qualified distribution;
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 satisfy the required five taxable year period for a qualified distribution; and
  • Any investment earnings on traditional after-tax contributions.
For purposes of the above, the required five taxable year period for a qualified distribution begins upon the earliest of the following: (i) your first Roth 401(k) contribution to the Plan, (ii) your first in-plan Roth conversion under the Plan, or (iii) your first Roth contribution to another employer's 401(k), section 403(b) or governmental section 457(b) plan if you made a direct rollover of Roth contributions from the other plan to this Plan.
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.