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 59½. 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 distribute the untaxed cash contributions without petitioner’s being subject to the income tax. Accordingly, respondent’s determination is sustained, and we hold that the entire amount of the distribution from petitioner’s retirement plan is includable in his gross income.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered for respondent.