Publication 575 - Pension And Annuity Income - 2002 Page 18
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34local government or tax-exempt organization) cannot qual-
403(b) tax-sheltered annuity on behalf of the plan
ify as a lump-sum distribution.
participant.
•
A distribution from a qualified plan that received a
The participant’s entire balance from a plan does not
rollover after 2001 from another qualified plan on
include certain forfeited amounts. It also does not include
behalf of that plan participant’s surviving spouse.
any deductible voluntary employee contributions allowed
•
by the plan after 1981 and before 1987.
A corrective distribution of excess deferrals, excess
contributions, excess aggregate contributions, or ex-
Reemployment. A separated employee’s vested per-
cess annual additions.
centage in his or her retirement benefit may increase if he
•
or she is rehired by the employer within 5 years following
A lump-sum credit or payment from the Federal Civil
separation from service. This possibility does not prevent a
Service Retirement System (or the Federal Employ-
distribution made before reemployment from qualifying as
ees’ Retirement System).
a lump-sum distribution. However, if the employee elected
an optional method of figuring the tax on the distribution
How to treat the distribution. If you receive a lump-sum
and his or her vested percentage in the previous retirement
distribution, you may have the following options for how
benefit increases after reemployment, the employee must
you treat the taxable part.
recapture the tax saved. This is done by increasing the tax
•
for the year in which the increase in vesting first occurs.
Report the part of the distribution from participation
before 1974 as a capital gain (if you qualify) and the
Distributions that do not qualify. The following distri-
part from participation after 1973 as ordinary in-
butions do not qualify as lump-sum distributions for the
come.
capital gain treatment or 10-year tax option.
•
Report the part of the distribution from participation
•
Any distribution that is partially rolled over to another
before 1974 as a capital gain (if you qualify) and use
qualified plan or an IRA.
the 10-year tax option to figure the tax on the part
•
from participation after 1973 (if you qualify).
Any distribution if an earlier election to use either the
•
5- or 10-year tax option had been made after 1986
Use the 10-year tax option to figure the tax on the
for the same plan participant.
total taxable amount (if you qualify).
•
•
U.S. Retirement Plan Bonds distributed with a lump
Roll over all or part of the distribution. See Rollovers,
sum.
later. No tax is currently due on the part rolled over.
•
Report any part not rolled over as ordinary income.
Any distribution made during the first 5 tax years that
•
the participant was in the plan, unless it was made
Report the entire taxable part of the distribution as
because the participant died.
ordinary income on your tax return.
•
The current actuarial value of any annuity contract
The first three options are explained in the following
included in the lump sum. (The payer’s statement
discussions.
should show this amount, which you use only to
figure tax on the ordinary income part of the distribu-
Electing optional lump-sum treatment. You can
tion.)
choose to use the 10-year tax option or capital gain treat-
•
Any distribution to a 5% owner that is subject to
ment only once after 1986 for any plan participant. If you
penalties under section 72(m)(5)(A) of the Internal
make this choice, you cannot use either of these optional
Revenue Code.
treatments for any future distributions for the participant.
•
Complete Form 4972 and attach it to your Form 1040 if
A distribution from an IRA.
you choose to use the tax options. If you received more
•
A distribution from a tax-sheltered annuity (section
than one lump-sum distribution for a plan participant during
403(b) plan).
the year, you must add them together in your computation.
•
A distribution of the redemption proceeds of bonds
If you and your spouse are filing a joint return and you both
rolled over tax free to a qualified pension plan, etc.,
have received a lump-sum distribution, each of you should
from a qualified bond purchase plan.
complete a separate Form 4972.
•
A distribution from a qualified plan if the participant
Time for choosing. You must decide to use the tax
or his or her surviving spouse previously received an
options before the end of the time, including extensions, for
eligible rollover distribution from the same plan (or
making a claim for credit or refund of tax. This is usually 3
another plan of the employer that must be combined
years after the date the return was filed or 2 years after the
with that plan for the lump-sum distribution rules)
date the tax was paid, whichever is later. (Returns filed
and the previous distribution was rolled over tax free
before their due date are considered filed on their due
to another qualified plan or an IRA.
date.)
•
A distribution from a qualified plan that received a
Changing your mind. You can change your mind and
rollover after 2001 from an IRA (other than a conduit
decide not to use the tax options within the time period just
IRA), a governmental section 457 plan, or a section
discussed. If you change your mind, file Form 1040X,
Page 18
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