A rollover occurs when you withdraw cash or other assets from one qualified employer retirement plan and contribute all or part of it within 60 days to another qualified retirement plan or traditional IRA. This transaction is not taxable but it is reportable on your Federal Tax Return. You can roll over most distributions except for:

• The nontaxable part of a distribution, such as your after–tax contributions to a retirement plan (After-tax contributions that are distributed after December 31, 2001 may be rolled over in certain situations),
• A distribution that is one of a series of payments based on life expectancy or paid over a period of ten years or more,
• A required minimum distribution, or
• A hardship distribution from a 401(k) plan.

Any taxable amount that is not rolled over must be included as income in the year you receive it.

If the distribution is paid to you, you have 60 days from the date you receive it to roll it over. Any taxable distribution paid to you is subject to a mandatory withholding of 20%, even if you intend to roll it over later. If you do roll it over, and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your employer transfer a distribution directly to another eligible plan or to an IRA. Under this option, taxes are not withheld.

If you are under age 59 1/2 at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions. Certain distributions from a SIMPLE IRA will be subject to a 25% additional tax.

For further information about rollovers and transfers, refer to Publication 575 (PDF) .

Tax Topics & FAQs | 2002 Tax Year Archives | Tax Help Archives | Home