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In addition individuals generally will be able to move aftertax contributions from their pension plan into a traditional IRA.
The company cannot match an employee's aftertax contributions or match 401(k) deferrals that exceed 6% of the employee's compensation.
The rate of matching contributions cannot increase as the rate of an employee's aftertax contributions increases.
Example: Betty's Roth IRA has a balance of $15,650 in 2004, representing $12,000 in aftertax contributions and $3,650 in, accumulated earnings.
Because Roth IRA withdrawals are not taxed under the normal annuity rules, taxpayers can recover aftertax contributions first to pay college costs and wait to distribute earnings tax-free after retirement.
To distinguish between the tax attributable to pre- and aftertax contributions, an exclusion ratio must be calculated.
Conventional Aftertax contributions exclusion = annual benefit x life ratio expectancy from Treasury regulations section 1.
WHEN PART OF AN annuity benefit represents a return of aftertax contributions, an alternative safe harbor method can be used to determine the excludable amount.