Frequently Asked Tax Questions And Answers
Keyword: Rollover
5.3 Pensions and Annuities: Distributions, Early Withdrawals, 10% Additional Tax
I changed jobs and my old employer sent me a check for my 401(k)
money withholding 20% for Federal Income Tax. I rolled over the distribution
to my 401(k) plan at my current employer within 60 days. Since money was withheld
from the 401(k) distribution, do I have to include that money as income?
If the amount rolled over was the net amount, that is, the amount of the
distribution less the tax withheld, then the 20% withholding amount not rolled
over is included in gross taxable income and may be subject to a 10 percent
additional tax on early distributions from qualified retirement plans. Use Form 5329 (PDF), Additional Taxes on Other Qualified
Plans (including IRA's), and other tax-favored accounts, to report the
penalty.
If the amount rolled over was the gross amount, that is, you added an amount
equal to the withholding to the amount that was rolled over, you would not
add any of that amount to gross taxable income this year or owe a 10 percent
additional tax on early distributions from qualified retirement plans.
References:
- Publication 590, Individual Retirement Arrangements
(IRAs)
- Form 5329 (PDF), Additional
Taxes on Other Qualified Plan (including IRA's), and other tax-favored accounts
-
Instructions for Form 5329, Additional
Taxes on Other Qualified Plan (including IRA's), and other tax-favored accounts
- Tax Topic 558, Tax on early distributions from retirement
plans
- Tax Topic 412, Lump-sum distributions
5.5 Pensions and Annuities: Rollovers
How long do I have to roll over a retirement distribution?
You must complete the rollover by the 60th day following the day on which
you receive the distribution. (This 60-day period is extended for the period
during which the distribution is in a frozen deposit in a financial institution).
The IRS may waive the 60 day requirement where failure to do so would be against
equity or good conscience, such as in the event of a casualty, disaster, or
other event beyond your reasonable control. To obtain the waiver in most cases,
A request for a letter ruling must be made. A user fee of $90.00 will apply see Revenue Procedure
2003-16 (within IRS Bulletin 2003-4) . A written explanation of rollover
must be given to you by the issuer making the distribution. For information
on distributions which qualify for rollover treatment, refer to Tax Topic 413 , Rollovers
from Retirement Plans . For information on the Direct Rollover Option,
refer to Chapter 1 of Publication 590 , Individual Retirement
Arrangements (IRA's).
References:
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