Jan 15, 2010

List Of Transactions Not Eligible For Rollover

The Unemployment Compensation Act of 1992 created Code Section 401(a)(31) which is about direct rollovers and 20% mandatory withholding. Generally, all distributions from qualified plans are eligible for rollover, and if an eligible rollover distribution is paid to a participant it is subject to 20% mandatory withholding. A list of distributions that are not eligible for rollover and hence not subject to mandatory 20% withholding was included in the law.

Dec 18, 2009

Premature Distribution Penalty Exceptions

In general, distributions from a qualified plan are taxable for federal income tax purposes on receipt, unless rolled over into another eligible retirement plan. When a lump sum distribution is taken, 20% of the entire distribution is withheld as pre-payment of federal income tax. In addition to including the lump sum distribution in income, IRC Section 72(t) provides that distributions from 403(b) or 401(k) plan taken before the participant reaches age 59 ½ will incur an additional 10% federal tax. This tax is often referred to as a “penalty tax”.

Dec 11, 2009

Safe Harbor Plans and Top Heavy

One advantage to becoming safe harbor is that a top heavy plan that adheres to the specific rules will be exempt from being top-heavy for the plan year.

Nov 13, 2009

Dos and Don'ts of Hardship Distributions

Given the current economic climate, a greater number of participants may request a hardship distribution from a retirement plan. It is important to follow both the plan document and legal requirements before making these distributions to avoid jeopardizing the qualified status of the plan.