Payments That Can and Cannot be Rolled Over

Some or all of your pension balance may be an eligible rollover distribution that can be transferred to a traditional IRA or a qualified employer plan that accepts rollovers. Your Plan administrator can tell you what portion of your payment is an eligible rollover distribution.

Payments that cannot be rolled over

    1. Required Minimum Distributions (RMDs). When you reach age 72 a certain portion of your payment cannot be rolled over. Special rules apply if you own more than 5% of the business sponsoring the plan.
    2. Hardship Distributions. A hardship distribution cannot be rolled over.
    3. Corrective Distributions. A distribution made to correct a failed nondiscrimination test or correct contributions that exceeded legal limits cannot be rolled over.
    4. Loans Treated as Distributions. A defaulted plan loan becomes taxable and cannot be rolled over. However, a loan offset amount is eligible for rollover.
    5. Payments Spread over Long Periods. You cannot roll over a payment that is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for your lifetime (or a period measured by your life expectancy), or your lifetime and your beneficiary’s lifetime (or a period measured by your joint life expectancy), or a period of 10 years or more.

Direct Rollover Distribution

A Direct Rollover is payment of your Plan benefits to a traditional IRA or to a qualified employer plan that will accept it. You can choose a Direct Rollover of all or part of your payment that is eligible for rollover distribution. You are not taxed on your distribution when you roll it over. Instead, you will be taxed when you withdraw from the new IRA or plan. You cannot choose a Direct Rollover if your distribution is less than $500.

Direct Rollover to a Traditional IRA

First, open a Traditional IRA to receive the direct rollover. Then, contact the IRA sponsor (usually a financial institution) to find out how to have the payment at that institution. See IRS Publication 590, Individual Retirement Arrangements, for more information on traditional IRAs (including limits on how often you can roll over between IRAs and how to change investments). Under the Internal Revenue Code, your payment(s) cannot be rolled over to certain types of IRAs, such as a Roth IRA, SIMPLE IRA, or Coverdell Education Savings Account (formerly known as an education IRA).

Direct Rollover to a Qualified Employer Plan

A qualified employer plan can be “qualified” under Internal Revenue Code section 401(a) 401(k), profit-sharing, defined benefit, stock bonus, and money purchase; under section 403(a) annuity or 403(b) tax-sheltered annuity; or under section 457(b) government employers plan.

First, ask your new employer’s plan administrator if they have a qualified employer plan. Then, ask whether they will accept your distribution type and for the required documents and information for transfer.

  • A qualified employer plan is not legally required to accept a rollover.
  • If your new employer doesn’t accept your rollover, you can still roll your distribution over to a traditional IRA described above.
  • The new employer plan may restrict subsequent distributions of the rollover amount or may require your spouse’s consent for subsequent distribution.
  • Future distributions from the new plan may be subject to different tax treatment than this Plan’s distributions.
  • Check with the administrator of the new plan before making your decision.

Sixty-day Rollover Option for Cash Distributions

Suppose you receive a payment that could have been rolled over. You can still decide to roll over all or part of it to a traditional IRA or to a qualified employer plan that accepts rollovers within 60 days after you receive the payment. You can rollover up to 100% of that payment, including an amount equal to 20% of the taxable portion withheld. If you choose to roll over 100%, you must find other money within the 60 days to contribute to the traditional IRA or employer plan to replace the 20% that was withheld. On the other hand, if you roll over only the 80% of the taxable portion you received, you will be taxed on the 20% that was withheld. To avoid this problem, use the Direct Rollover when possible.