Thanks to all who replied.

John

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"John Richards" <jrichar3[at]twcny.rr.com> writes:

- quote -

Correct. The same is true for distributions from
traditional IRAs. The only exception is when there have
been after-tax contributions, in which case those
contributions are returned tax-free.

See Part I of Form 8606 for more details about after-tax
contributions.

Phil Marti
Clarksburg, MD

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ALL distributions from your 401k, except after-tax
contributions, are taxed as ORDINARY income. This is true,
whether you are 59-1/2 or not, terminated or retired. In
rare instance (beneficiary born before 1936) there may be
the option to treat part of the distribution as capital
gains, but normally there is no such treatment of 401k
accounts..

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John Richards wrote:

- quote -

Yep.

Gary Cooper, aka Harlan Lunsford, EA n LA
Happy New ChEAr$, ya'll.

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- quote -

No matter when you take the money out, it is ordinary.

Helen, EA in PA
Director, NAEA; Immediate Past President, PSEA; Tax Expert, AOL
Enrolled Agents - THE Tax Professionals

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jrichar3[at]twcny.rr.com (John) posted:

- quote -

That's correct.

One additional comment: Usually, when one retires (i.e.,
sometime after age 59 1/2), either your employer will want
to terminate your participation in their qualified 401K --
or you will -- and the funds should then be transferred to a
trustee whom you select, and will at that point be converted
into a traditional IRA. No tax consequences at all for the
transfer, so long as it's direct from the 401K trustee to
your new IRA trustee.

And the future distributions will be treated as ordinary
income, as you take them -- either way ... with no
consideration of the "gained value."

Bill

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Could someone verify (or correct) my understanding of the
tax treatment of normal distributions from a 401K plan? As
far as I can determine, distributions taken for retirement
income after age 59 1/2 are taxed as regular income
regardless of whether the investments within the plan gained
value through capital gains, dividends or interest.

Thanks
John

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