taxmap/pubs/p560-018.htm#TXMP00079a56
Distributions(p16)

taxmap/pubs/p560-018.htm#TXMP54af3dec
Note.A distribution from a designated Roth account can be rolled over to another designated Roth account or to a traditional IRA. If the rollover is to a traditional IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee).

A distribution of the employee's nondeductible contributions may qualify as a rollover distribution. The transfer must be made either (1) through a direct rollover to a defined contribution plan (or, beginning in 2007, to a section 403(b) plan) that separately accounts for the taxable and nontaxable parts of the rollover or (2) through a rollover to a traditional IRA.

taxmap/pubs/p560-018.htm#TXMP09955168 More information.(p17)

For more information about rollovers, see Rollovers in Pubs. 575 and 590.

taxmap/pubs/p560-018.htm#TXMP6bac5a3d Withholding requirement.(p17)

If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of each distribution for federal income tax.

taxmap/pubs/p560-018.htm#TXMP37d00da7 Exceptions.(p17)

If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required.

If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Other withholding rules apply to distributions such as long-term periodic distributions and required distributions (periodic or nonperiodic). However, the participant can still choose not to have tax withheld from these distributions. If the participant does not make this choice, the following withholding rules apply.

• For periodic distributions, withholding is based on their treatment as wages.
• For nonperiodic distributions, 10% of the taxable part is withheld.

taxmap/pubs/p560-018.htm#TXMP47ae1bc7 Estimated tax payments.(p17)

If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. For more information, see Withholding Tax and Estimated Tax in Pub. 575.

taxmap/pubs/p560-018.htm#TXMP4c51a20c Tax on Early Distributions(p17)

Penalty, Early Distributions from IRAs and Plans

If a distribution is made to an employee under the plan before he or she reaches age 591/2, the employee may have to pay a 10% additional tax on the distribution. This tax applies to the amount received that the employee must include in income.

taxmap/pubs/p560-018.htm#TXMP2f3bbd42 Exceptions.(p17)

The 10% tax will not apply if distributions before age 591/2 are made in any of the following circumstances.

• Made to a beneficiary (or to the estate of the employee) on or after the death of the employee.
• Made due to the employee having a qualifying disability.
• Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 591/2, whichever is the longer period.)
• Made to an employee after separation from service if the separation occurred during or after the calendar year in which the employee reached age 55.
• Made to an alternate payee under a QDRO.
• Made to an employee for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the employee itemizes deductions).
• Timely made to reduce excess contributions under a 401(k) plan.
• Timely made to reduce excess employee or matching employer contributions (excess aggregate contributions).
• Timely made to reduce excess elective deferrals.
• Made because of an IRS levy on the plan.
• Made as a qualified reservist distribution. A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period.

taxmap/pubs/p560-018.htm#TXMP6eb3fb43 Reporting the tax.(p17)

To report the tax on early distributions, file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. See the form instructions for additional information about this tax.

taxmap/pubs/p560-018.htm#TXMP3a6b12ca Tax on Excess Benefits(p17)

Excess Benefits

If you are or have been a 5% owner of the business maintaining the plan, amounts you receive at any age that are more than the benefits provided for you under the plan formula are subject to an additional tax. This tax also applies to amounts received by your successor. The tax is 10% of the excess benefit includible in income.

taxmap/pubs/p560-018.htm#TXMP0df8c2a3 5% owner.(p17)

You are a 5% owner if you meet either of the following conditions at any time during the 5 plan years immediately before the plan year that ends within the tax year you receive the distribution.

• You own more than 5% of the capital or profits interest in the employer.
• You own or are considered to own more than 5% of the outstanding stock (or more than 5% of the total voting power of all stock) of the employer.

taxmap/pubs/p560-018.htm#TXMP5f41b824 Reporting the tax.(p18)

Include on Form 1040, line 63, any tax you owe for an excess benefit. On the dotted line next to the total, write "Sec. 72(m)(5)" and write in the amount.

taxmap/pubs/p560-018.htm#TXMP28a1a6b6 Lump-sum distribution.(p18)

The amount subject to the additional tax is not eligible for the optional methods of figuring income tax on a lump-sum distribution. The optional methods are discussed under Lump-Sum Distributions in Pub. 575.

taxmap/pubs/p560-018.htm#TXMP66dcd11a Excise Tax on Reversion of Plan Assets(p18)

Excise Tax on Reversion of Plan Assets

A 20% or 50% excise tax is generally imposed on the cash and fair market value of other property an employer receives directly or indirectly from a qualified plan. If you owe this tax, report it on Schedule I of Form 5330. See the form instructions for more information.

taxmap/pubs/p560-018.htm#TXMP3cb0df00 Notification of Significant  Benefit Accrual Reduction(p18)

Significant Benefit Accrual Reduction, Notification

An employer or the plan will have to pay an excise tax if both the following occur.

• A defined benefit plan or money purchase pension plan is amended to provide for a significant reduction in the rate of future benefit accrual.
• The plan administrator fails to notify the affected individuals and the employee organizations representing them of the reduction in writing. Affected individuals are the participants and alternate payees whose rate of benefit accrual under the plan may reasonably be expected to be significantly reduced by the amendment.

A plan amendment that eliminates or reduces any early retirement benefit or retirement-type subsidy reduces the rate of future benefit accrual.

The notice must be written in a manner calculated to be understood by the average plan participant and must provide enough information to allow each individual to understand the effect of the plan amendment. It must be provided within a reasonable time before the amendment takes effect.

The tax is $100 per participant or alternate payee for each day the notice is late. It is imposed on the employer, or, in the case of a multi-employer plan, on the plan.

There are certain exceptions to, and limitations on, the tax. The tax does not apply in any of the following situations.

• The person liable for the tax was unaware of the failure and exercised reasonable diligence to meet the notice requirements.
• The person liable for the tax exercised reasonable diligence to meet the notice requirements and provided the notice within 30 days starting on the first date the person knew or should have known that the failure to provide notice existed.

If the person liable for the tax exercised reasonable diligence to meet the notice requirement, the tax cannot be more than $500,000 during the tax year. The tax can also be waived to the extent it would be excessive or unfair if the failure is due to reasonable cause and not to willful neglect.

Previous Page:  Publication 560 - Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans) - Qualified Roth Contribution Program Next Page:  Publication 560 - Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans) - Prohibited Transactions Use   to find additional occurrences of topic items.