If you become eligible for a distribution from the Annuity Plan, you may defer payment of the 20% federal withholding tax (and an additional 10% tax penalty if received before age 59½) by rolling over the taxable portion of your distribution to an eligible retirement plan (if that plan accepts rollovers).
To be considered an eligible retirement plan, a plan must accept eligible rollover distributions and be:
- An individual retirement account under Section 401(a) of the Internal Revenue Code;
- An individual retirement annuity under Section 401(b) of the Internal Revenue Code;
- A Roth individual retirement account under Section 408(A) of the Internal Revenue Code;
- An annuity plan under Section 403(a) of the Internal Revenue Code;
- A qualified trust under Section 401(a) of the Internal Revenue Code;
- An annuity contract under Section 403(b) of the Internal Revenue Code; or
- An eligible plan under Section 457(b) of the Internal Revenue Code that is maintained by a state, political subdivision of a state, or any agency of a state or political subdivision that agrees to separately account for amounts into such a plan.
In addition, a non-spousal beneficiary may elect a direct rollover into an inherited IRA.
It is important to note that some individuals may not be eligible to make a rollover into a Roth IRA. It is your responsibility to determine if you are eligible to make a rollover into a Roth IRA. In addition, even if you are eligible to rollover into a Roth IRA, the rollover will be considered taxable income.
The above also applies to surviving spouses and alternate payees under a Qualified Domestic Relations Order (QDRO).
You cannot rollover a payment if it 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 your life expectancy),
- Your lifetime and your beneficiary’s lifetime (or life expectancies), or
- A period of ten or more years.
In addition, you cannot rollover:
- Any distribution that is required under Section 401(a)(9) of the Internal Revenue Code,
- A distribution to more than one retirement plan, or
- Any portion of a distribution that is not included in your gross income.
You may elect to split the distribution between a direct rollover to a qualified plan and lump-sum payment to you. The amount not rolled over will be subject to the 20% federal withholding tax. If you are under age 59½, you may also be subject to an additional 10% tax penalty.
If the amount of your benefit is $5,000 or less, and you do not elect to make a rollover, you will receive a lump-sum payment, subject to the 20% federal withholding tax. If you are under age 59½, you may also be subject to an additional 10% tax penalty.
If your benefit exceeds $5,000, the benefit will remain in the Plan until you make an election. Beginning in the year you reach age 70½, a certain portion of your payment cannot be rolled over because it is a “required minimum payment” that must be paid to you.