If the lump-sum
distribution qualifies, you can elect to treat the portion of the payment
attributable to your active participation in the plan
by reporting
the part of the distribution from participation before 1974 as a capital
gain (if you qualify) and the part of the distribution from participation
after 1973 as ordinary income. You can also report the part of the distribution from
participation before 1974 as a capital gain (if you qualify) and use the
10-year tax option to figure the tax on the part from participation after
1973 (if you qualify). Additionally, you can use the
10-year tax option to figure the tax on the total taxable amount (if you
qualify). Furthermore, you can roll over all or part of
the distribution. No tax is currently due on the part rolled over. Report
any part not rolled over as ordinary income. Finally, you can report
the entire taxable part as ordinary income.
If the lump-sum distribution includes employer
securities and an amount is reported in box 6 of your Form 1099-R for net
unrealized appreciation (NUA), the NUA is generally not subject to tax until
you sell the securities. However, you may elect to include the NUA in your
income in the year the securities are distributed to you.You should receive a Form 1099-R
from the payer of the lump-sum distribution showing your taxable
distribution and the amount eligible for capital gain treatment. If you do
not receive Form 1099-R by January 31 of the year following the year of the
distribution, you should contact the payer of your lump-sum distribution.
You may defer tax on all or part of a lump-sum
distribution by requesting the payor to directly roll over the taxable
portion into an individual retirement arrangement (IRA) or to an eligible
retirement plan. You can also defer tax on a distribution paid to you by
rolling over the taxable amount to an IRA within 60 days after receipt of
the distribution. A rollover, however, eliminates the possibility of using
the special tax rules described above for any later distribution. Mandatory
income tax withholding of 20% applies to most taxable distributions paid
directly to you in a lump sum from employer retirement plans regardless of
whether you plan to roll over the taxable amount within 60 days.
If the lump-sum distribution qualifies, you can
elect to treat the portion of the payment attributable to your
active participation in the plan using one of five options, such
as reporting the part of the distribution from participation
before 1974 as a capital gain (if you qualify) and the part of the
distribution from participation after 1973 as ordinary income. Use the
10-year tax option to figure the tax on the total taxable amount (if you
qualify). You also roll over all or part of the distribution. No tax is
currently due on the part rolled over. Report any part not rolled over as
ordinary income.
If the lump-sum distribution includes employer
securities and an amount is reported in box 6 of your Form
1099-R for net unrealized appreciation (NUA), the NUA is
generally subject to tax when you sell the securities and you
must include the income in the year of distribution.
Rollovers from Retirement Plans
Most pre-retirement payments you receive from a
retirement plan or IRA can be “rolled over” by depositing the payment in
another retirement plan or IRA within 60 days. You can also have your
financial institution or plan directly transfer the payment to another plan
or IRA.
