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Retirement tax questions
@BruceR
Correct: Massachusetts adopts the same principal as does the IRS that distributions from a deferred income IRA which contains both previously taxed principal ("basis") and accumulated untaxed income generated cause the basis to be withdrawn first so that only when the basis is exhausted do successive withdrawal recognize the untaxed income.
As to the Rollover IRA with the proceeds of the terminated §401(k) deferred income - please note that a §401(k) plan usually has two separate accounts, with one being your already taxed contributions and a second with employer-matched untaxed (as yet) contributions. It is helpful to keep the two accounts separate so that accounting for what is and what is not subject to tax liability is simple, if not then you must maintain an accounting record to properly reflect the basis. Assuming that you are only discussing your untaxed contributions to the §401K plan [NOTE: this applies at both Federal and Mass. level] , it would be best if you could segregate those untaxed principal contributions and their earnings. Otherwise you will have to and must continue to maintain an accounting that recognizes this separate basis of untaxed funds.
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