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| * A required minimum distribution, * A hardship distribution, * Dividends paid on employer securities, or * The cost of life insurance coverage. |
| The taxable amount of a distribution that is not rolled over must be included in income in the year of the distribution. If an eligible rollover distribution is paid to you, you have 60 days from the date you receive it to roll it over to another eligible retirement plan. Any taxable eligible rollover distribution paid from an employer-sponsored retirement plan to you is subject to a mandatory income tax withholding of 20%, even if you intend to roll it over later. If you do roll it over, and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have the payer transfer a distribution directly to another eligible retirement plan or to an IRA. Under this direct rollover option, the 20% mandatory withholding does not apply. |
| In general, if you are under age 59½ at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions unless an exception applies. Certain distributions from a SIMPLE IRA will be subject to a 25% additional tax. |
| You may defer tax on all or part of a lump-sum distribution by requesting the payer to directly roll over the taxable portion into an IRA. 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. However, a rollover eliminates the possibility of using the special tax rules 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. |
| A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it, within 60 days, to another eligible retirement plan. A rollover transaction is not taxable but it is reportable on your federal tax return. You can roll over most distributions from an eligible retirement plan except for the the nontaxable part of a distribution or a distribution that is one of a series of payments made for your life (or life expectancy). You cannot rollover a required minimum distribution or a hardship distribution. Neither could you rollover dividends paid on employer securities or the cost of life insurance coverage. |
| You have 60 days to make a rollover from an eligible retirement plan to another eligible retirement plan. In addition, the taxable amount of a distribution that is not rolled over must be included in income in the year of the distribution. As a consequence, any taxable eligible rollover distribution paid from an employer-sponsored retirement plan to you is subject to a mandatory income tax withholding of 20%. In general, if you are under age 59½ at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions unless an exception applies. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Federal Tax Refresher Course rights reserved. |
| Revised: 05/28/15 |
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