The answer to this question depends on your type of retirement plan. If your employer's plan has a separate account for each employee. This is called a defined contribution plan if any amount was contributed or allocated by you or your employer to your account, you are considered covered. It does not matter if you have worked long enough to be vested.

In the other type of plan, the plan employer must make enough contributions (together with earnings) to provide the retirement benefit promised in the retirement plan. This is called a defined benefit plan. In this type of plan, if you meet the minimum age and years of service requirements to participate in your employer's plan, you are considered covered even if you decline coverage. It does not matter if you are vested.

The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The "Pension Plan" box should have a mark in it if you were covered.

References:

• Publication 575, Pensions and Annuity Income.
• Tax Topic 409, Pensions and Annuities.

A 403(b) plan is a tax-sheltered annuity plan for employees of public schools and certain tax-exempt organizations. Under a special coverage and nondiscrimination rule, if any employee may make elective deferrals, the plan is considered discriminatory unless the opportunity to make contributions deferrals of more than $200 pursuant to a salary reduction agreement is available to all employees on a basis that does not discriminate in favor of highly compensated employees. For more information, refer to Internal Revenue Code section 403(b)(1)(D),(12)(A)(ii).

The maximum elective deferral for 2003 that an employee may make to a 403 (b) plan is $12,000. This maximum limit applies to an employee's aggregate pre-tax contributions to a 403 (b) plan and section 401 (k) plan. This maximum limit will increase by $1,000 each year through 2006. If you have at least 15 years of service with a public school system, hospital, home health service agency, health and welfare agency, church or convention or association of churches (or associated organization), the general limit on elective deferrals may be increased by up to $3,000 (See Publication 571 chapter 4). In addition, employees age 50 or over may be eligible to make catchup contributions of $2000 in 2003 (see Publication 571 chapter 6).

For more information about 403 (b) plans, refer to Publication 571, Tax Sheltered Annuity Plans 403 (b) Plans.

References:

• Publication 571, Tax Sheltered Annuity Plans 403 (b) Plans
• IRS Code Sec. 402(g) (1)

Special tax computations are allowed for qualifying recipients of certain lump-sum distributions from retirement plans. Refer to Tax Topic 412 which discusses Lump-Sum Distributions, or Publication 575, Pension and Annuity Income.

References:

• Publication 575, Pension and Annuity Income
• Tax Topic 412, Lump-sum distributions

You may be able to elect optional methods of figuring the tax on lump-sum distributions you received from a qualified retirement plan.

A lump-sum distribution is the distribution or payment, within a single tax year, of an employees entire balance from all of the employer's qualified pension, profit-sharing, or stock bonus plans. The distribution must have been made under specific conditions. For details, refer to Tax Topic 412 which discusses Lump Sum Distributions or Publication 575, Pension and Annuity Income.

References:

• Publication 575, Pension and Annuity Income
• Tax Topic 412, Lump-sum distributions

You will need to file a Form 1040 and show the amount of withdrawal from your pension. Since you took the withdrawal before reaching age 59 1/2, you may need to pay a 10 percent additional tax on early distributions from qualified retirement plans that is reported on line 57 of Form 1040. The early distribution tax does not apply to any distribution that meets the criteria for one of several exceptions (seePublication 575 , "Tax on Early Distribution"). This tax applies to the distribution that you must include in gross income. It does not apply to any part of a distribution that is tax free, such as amounts that represent a return of your cost or that were rolled over to another retirement plan. You need to complete Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's) and other tax-favored accounts and attach it to the tax return.

References:

• Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's, Annuities) and other tax-favored accounts
• Instructions for Form 5329, Additional Taxes on Qualified Plans (including IRA's) and other tax-favored accounts
• Tax Topic 558, Tax on early distributions from retirement plans
• Publication 557 , Pension and Annuity Income

Because our tax system is a pay-as-you-go system, you may need to make an estimated tax payment by the due date for the quarter in which you received the distribution. When calculating your tax liability to determine whether you need to make an estimated tax payment, your total tax for the year should include the amount of the 10 percent additional tax on early distributions from qualified retirement plans unless any exception applies.

You would calculate the tax on Form 1040ES (PDF), Estimated Tax for Individuals, and any 10 percent additional tax on early distributions from qualified retirement plans on Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRA's) and other tax-favored accounts.

References:

• Form 1040ES (PDF), Estimated Tax for Individuals
• Form 5329 (PDF), Additional Taxes Attributable on Qualified Plans (Including IRA's) and other tax-favored accounts
• Publication 505, Tax Withholding and Estimated Tax
• Tax Topic 451, Individual retirement arrangements (IRAs)
• Tax Topic 558, Tax on early distributions from retirement plans

No, the 10 percent additional tax on early distributions from qualified retirement plans you pay for a premature withdrawal does not qualify as a penalty for withdrawal of a savings account.

References:

• Publication 550, Investment Income and Expenses
• Publication 529, Miscellaneous Deductions
• Publication 575, Pension and Annuity Income
• Tax Topic 558, Tax on early distributions from retirement plans

If you take a distribution from certain pension plans before you have reached 59 1/2 years of age, you may be subject to an additional 10 percent tax on early distribution unless you meet the exceptions in Publication 575, Pension and Annuity Income. This 10 percent is in addition to the income tax you pay on the distribution. The total income tax you owe on your individual income tax return is reduced by any withholding or estimated tax payments, including the 20% withholding identified on your Form 1099-R.

References:

• Publication 575, Pension and Annuity Income
• Tax Topic 558, Tax on early distributions from retirement plans
• Tax Topic 412, Lump-sum distributions

You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution). The IRS may waive the 60 day requirement where failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. To obtain the waiver in most cases, A request for a letter ruling must be made. A user fee of $90.00 will apply see Revenue Procedure 2003-16 (within IRS Bulletin 2003-4) . A written explanation of rollover must be given to you by the issuer making the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413 , Rollovers from Retirement Plans . For information on the Direct Rollover Option, refer to Chapter 1 of Publication 590 , Individual Retirement Arrangements (IRA's).

References:

• Publication 17, Your Federal Income Tax
• Publication 575, Pensions and Annuity.
• Tax Topic 413, Rollovers from Retirement Plans

The amount you can deduct will be determined by your modified Adjusted Gross Income (AGI) and filing status. For specific information refer to Publication 590, Individual Retirement Accounts (IRAs).

References:

• Publication 590, Individual Retirement Arrangements (IRAs)
• Tax Topic 451, Individual retirement arrangements (IRAs)