In many situations, a distribution from a qualified plan may be rolled over and thus excluded from current income. Any part of the taxable portion of a distribution from a qualified plan may be rolled over to a traditional IRA or to another distribution qualified plan, unless the distribution is one of a series of substantially equal payments made:
- over the life (or life expectancy) of the participant or the joint lives (or joint life expectancies) of the participant and his or her beneficiary or
- over a specified period of 10 years or more. In addition, a distribution may not be rolled over if it is required to be made under the required minimum distribution rules. Generally, the rollover must be made within 60 days. The IRS has the authority to grant a waiver of the 60-day rule in situations involving equity, good conscience, or situations beyond the control of the individual.
An individual may withdraw all or part of the assets of one traditional IRA and exclude the withdrawal from income if the individual transfers it to another traditional IRA or returns it to the same IRA. However, the transfer or return must generally be accomplished within 60 days after the withdrawal.
Employees born before January 2, 1936 may elect to have their lump-sum distributions form qualified retirement plans taxed under favorable 10 year averaging rates.
Generally, ten-year averaging and the special 20 percent tax are not available if any part of a lump-sum distribution is rolled over.
ALWAYS CONSULT YOUR TAX ADVISOR FOR SPECIFIC ADVICE ON YOUR SITUATION.