Publication 575 - Pension And Annuity Income - 2004 Page 29
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36•
From an employee stock ownership plan for divi-
for the exception. It applies even if you modify your method
dends on employer securities held by the plan, or
of distribution after you reach age 59
1
/
. In that case, the
2
tax applies only to payments distributed before you reach
•
From a qualified retirement plan due to an IRS levy
age 59
1
/
.
2
of the plan.
Report the recapture tax and interest on line 4 of Form
5329. Attach an explanation to the form. Do not write the
Additional exceptions for nonqualified annuity con-
explanation next to the line or enter any amount for the
tracts. The tax does not apply to distributions that are:
recapture on lines 1 or 3 of the form.
•
From a deferred annuity contract to the extent allo-
cable to investment in the contract before August 14,
Tax on Excess Accumulation
1982,
•
To make sure that most of your retirement benefits are
From a deferred annuity contract under a qualified
paid to you during your lifetime, rather than to your benefi-
personal injury settlement,
ciaries after your death, the payments that you receive
•
From a deferred annuity contract purchased by your
from qualified retirement plans must begin no later than
employer upon termination of a qualified employee
your required beginning date (defined later). The pay-
plan or qualified employee annuity plan and held by
ments each year cannot be less than the minimum re-
your employer until your separation from service, or
quired distribution.
•
If the actual distributions to you in any year are less than
From an immediate annuity contract (a single pre-
the minimum required distribution for that year, you are
mium contract providing substantially equal annuity
subject to an additional tax. The tax equals 50% of the part
payments that start within one year from the date of
of the required minimum distribution that was not distrib-
purchase and are paid at least annually).
uted.
For this purpose, a qualified retirement plan includes:
Substantially equal periodic payments. Payments
•
are substantially equal periodic payments if they are made
A qualified employee plan,
in accordance with one of the following methods.
•
A qualified employee annuity plan,
•
Required minimum distribution method. Under this
•
An eligible section 457 deferred compensation plan,
method, the resulting annual payment is redeter-
or
mined each year.
•
A tax-sheltered annuity plan (403(b) plan) (for bene-
•
Fixed amortization method. Under this method, the
fits accruing after 1986).
resulting annual payment is determined for the first
distribution year and remains the same amount for
each succeeding year.
Waiver. The tax may be waived if you establish that the
•
shortfall in distributions was due to reasonable error and
Fixed annuitization method. Under this method, the
that reasonable steps are being taken to remedy the
resulting annual payment is determined for the first
shortfall. If you believe you qualify for this relief, you must
distribution year and remains the same for each suc-
file Form 5329, pay the tax, and attach a letter of explana-
ceeding year.
tion. If the IRS grants your request, the tax will be refunded.
For information on these methods, see Revenue Ruling
State insurer delinquency proceedings. You might
2002-62, which is on page 710 of Internal Revenue Bulletin
not receive the minimum distribution because of state
2002-42 at
insurer delinquency proceedings for an insurance com-
pany. If your payments are reduced below the minimum
A change from method (2) or (3) to method (1) is
because of these proceedings, you should contact your
TIP
not treated as a modification to which the recap-
plan administrator. Under certain conditions, you will not
ture tax (discussed next) applies.
have to pay the 50% excise tax.
Recapture tax for changes in distribution method
Required beginning date. Unless the rule for 5% owners
under equal payment exception. An early distribution
applies, you generally must begin to receive distributions
recapture tax may apply if, before you reach age 59
/
, the
1
from your qualified retirement plan by April 1 of the year
2
distribution method under the equal periodic payment ex-
that follows the later of:
ception changes (for reasons other than your death or
•
The calendar year in which you reach age 70
/
, or
1
2
disability). The tax applies if the method changes from the
•
method requiring equal payments to a method that would
The calendar year in which you retire from employ-
not have qualified for the exception to the tax. The recap-
ment with the employer maintaining the plan.
ture tax applies to the first tax year to which the change
However, your plan may require you to begin to receive
applies. The amount of tax is the amount that would have
distributions by April 1 of the year that follows the year in
been imposed had the exception not applied, plus interest
which you reach age 70
1
/
, even if you have not retired.
2
for the deferral period.
The recapture tax also applies if you do not receive the
5% owners. If you are a 5% owner, you must begin to
payments for at least 5 years under a method that qualifies
receive distributions from the plan by April 1 of the year that
Page 29
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