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the distribution is received before retirement, only amounts
allocable to the “investment in the contract” are excludable from
gross income. Sec. 72(e)(2)(B), (8)(A).
The employee’s “investment in the contract” includes amounts
contributed by the employer, “but only to the extent that * * *
such amounts were includible in the gross income of the
employee”. Sec. 72(f). For purposes of a section 401(k) plan,
“elective contributions * * * are neither includible in an
employee’s gross income at the time the cash or other taxable
amounts would have been includible in the employee’s gross income
(but for the * * * [section 401(k) plan]), nor at the time the
elective contributions are contributed to the plan.” Sec.
1.401(k)-1(a)(4)(iii), Income Tax Regs.; see also sec. 1.402(a)-
1(d)(2), Income Tax Regs.
Petitioner’s entire balance in the retirement plan
constituted elective contributions, and the distribution from
petitioner’s retirement plan occurred before his separation from
service, death, or disability and before he reached the age of
59�. As a result, the contributions were not included in
petitioner’s gross income at the time of contribution, and
petitioner has no “investment in the contract” which may be
excluded from his gross income. In short, petitioner contributed
to the retirement plan a portion of his salary that was not taxed
at the time of contribution; the retirement plan cannot later
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Last modified: May 25, 2011