Tax Topic #413 |
2008 Tax Year |
Topic 413 - Rollovers from Retirement Plans
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. This transaction is not taxable but it is reportable
on your Federal Tax Return. You can roll over most distributions except for:
- The nontaxable part of a distribution, such as your after-tax contributions
to a retirement plan (in certain situations after- tax contributions can be
rolled over),
- A distribution that is one of a series of payments based on your life
expectancy or the joint life expectancy of you and your beneficiary or paid
over a period of ten years or more,
- A required minimum distribution,
- A hardship distribution,
- Dividends on employer securities, or
- The cost of life insurance coverage.
Further exclusions exist for certain loans and corrective distributions.
Any taxable amount that is not rolled over must be included as income in
the year of the distribution.
If a distribution is paid to you, you have 60 days from the date you receive
it to roll it over. Any taxable distribution paid to you is subject to a mandatory
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 your employer transfer a distribution directly to another eligible
plan or to an IRA. Under this option, the 20% mandatory withholding does not
apply.
If you are under age 59 1/2 at the time of the distribution, any taxable
portion not rolled over may be subject to a 10% additional tax on early distributions.
Certain distributions from a SIMPLE IRA will be subject to a 25% additional
tax. For more information on SIMPLE IRAs, refer to Publication 590, Individual
Retirement Accounts.
For further information about rollovers and transfers, refer to Publication 575, Pension and Annuity Income.
Page Last Reviewed or Updated: December 22, 2008
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