If you receive a lump-sum distribution from a qualified retirement plan and the plan
participant was born before 1936, you may be able to elect optional methods of figuring the tax on
the distribution. These optional methods can be elected only once after 1986 for any plan
participant. A qualified retirement plan, for this purpose, is a qualified employee plan or a
qualified employee annuity.
A lump-sum distribution is the distribution or payment, within a single tax year, of a plan
participant's entire balance from all of the employer's qualified plans of one kind (pension, profit-
sharing, or stock bonus plans). If the participant has more than one account in any category, all the
accounts must be distributed.
If the distribution qualifies, you can elect to treat the part from active participation in the
plan before 1974 as capital gain taxed at a 20% rate. You can elect to figure the tax on the rest of
the distribution using the 10-year tax option. For information on the 10-year tax option, see
You should receive a Form 1099-R from your employer showing your taxable distribution
and the amount eligible for capital gain treatment. If you do not receive Form 1099-R by
February 1, 2001, you should contact the payer of your lump-sum distribution.
You may choose to postpone paying tax on all or part of a lump-sum distribution by
requesting that your employer directly roll over the taxable portion into an Individual Retirement
Arrangement (IRA). You can also postpone the tax on a distribution paid to you by rolling over the
taxable amount to an IRA within 60 days after the distribution. A rollover, however, takes away
the possibility of any future special tax treatment of the distribution. See Topic 413
for more information on rollovers. Mandatory income tax
withholding of 20% applies to most taxable distributions paid to you in a lump sum from employer
pension plans regardless of whether you plan to roll over the taxable amount within 60 days.
More information on the rules for lump-sum distributions can be found in
Pension and Annuity Income, and in the
instructions for Form 4972, Tax on Lump-Sum Distributions.
Publications and forms may be downloaded from this site
or ordered by calling 1-800-829-3676.
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