Publication 575 - Pension And Annuity Income - 2004 Page 18
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36•
If you receive a lump-sum distribution from a qualified
Any distribution if an earlier election to use either the
employee plan or qualified employee annuity and the plan
5- or 10-year tax option had been made after 1986
participant was born before January 2, 1936, you may be
for the same plan participant.
able to elect optional methods of figuring the tax on the
•
U.S. Retirement Plan Bonds distributed with a lump
distribution. The part from active participation in the plan
sum.
before 1974 may qualify as capital gain subject to a 20%
•
tax rate. The part from participation after 1973 (and any
Any distribution made during the first 5 tax years that
part from participation before 1974 that you do not report
the participant was in the plan, unless it was made
because the participant died.
as capital gain) is ordinary income. You may be able to use
the 10-year tax option, discussed later, to figure tax on the
•
The current actuarial value of any annuity contract
ordinary income part.
included in the lump sum. (The payer’s statement
Each individual, estate, or trust who receives part of a
should show this amount, which you use only to
lump-sum distribution on behalf of a plan participant who
figure tax on the ordinary income part of the distribu-
was born before January 2, 1936 can choose whether to
tion.)
elect the optional methods for the part each received.
•
However, if two or more trusts receive the distribution, the
Any distribution to a 5% owner that is subject to
penalties under section 72(m)(5)(A) of the Internal
plan participant or the personal representative of a de-
ceased participant must make the choice.
Revenue Code.
Use Form 4972, to figure the separate tax on a
•
A distribution from an IRA.
lump-sum distribution using the optional methods. The tax
•
figured on Form 4972 is added to the regular tax figured on
A distribution from a tax-sheltered annuity (section
403(b) plan).
your other income. This may result in a smaller tax than
you would pay by including the taxable amount of the
•
A distribution of the redemption proceeds of bonds
distribution as ordinary income in figuring your regular tax.
rolled over tax free to a qualified pension plan, etc.,
from a qualified bond purchase plan.
Alternate payee under qualified domestic relations
•
order. If you receive a distribution as an alternate payee
A distribution from a qualified plan if the participant
under a qualified domestic relations order (discussed ear-
or his or her surviving spouse previously received an
lier under General Information), you may be able to choose
eligible rollover distribution from the same plan (or
the optional tax computations for it. You can make this
another plan of the employer that must be combined
choice for a distribution that would be treated as a
with that plan for the lump-sum distribution rules)
lump-sum distribution had it been received by your spouse
and the previous distribution was rolled over tax free
or former spouse (the plan participant). However, for this
to another qualified plan or an IRA.
purpose, the balance to your credit does not include any
•
A distribution from a qualified plan that received a
amount payable to the plan participant.
rollover after 2001 from an IRA (other than a conduit
If you choose an optional tax computation for a distribu-
IRA), a governmental section 457 plan, or a section
tion received as an alternate payee, this choice will not
403(b) tax-sheltered annuity on behalf of the plan
affect any election for distributions from your own plan.
participant.
More than one recipient. One or all of the recipients of a
•
A distribution from a qualified plan that received a
lump-sum distribution can use the optional tax computa-
rollover after 2001 from another qualified plan on
tions. See Multiple recipients of a lump-sum distribution in
behalf of that plan participant’s surviving spouse.
the instructions for Form 4972.
•
A corrective distribution of excess deferrals, excess
Reemployment. A separated employee’s vested per-
contributions, excess aggregate contributions, or ex-
centage in his or her retirement benefit may increase if he
cess annual additions.
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
and his or her vested percentage in the previous retirement
How to treat the distribution. If you receive a lump-sum
benefit increases after reemployment, the employee must
distribution, you may have the following options for how to
recapture the tax saved. This is done by increasing the tax
treat the taxable part.
for the year in which the increase in vesting first occurs.
•
Report the part of the distribution from participation
Distributions that do not qualify. The following distribu-
before 1974 as a capital gain (if you qualify) and the
tions do not qualify as lump-sum distributions for the capi-
part from participation after 1973 as ordinary in-
tal gain treatment or 10-year tax option.
come.
•
•
Any distribution that is partially rolled over to another
Report the part of the distribution from participation
qualified plan or an IRA.
before 1974 as a capital gain (if you qualify) and use
Page 18
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