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SAFE
HARBOR EXPLANATION FOR PLANS QUALIFIED UNDER SECTION 401(a), SECTION
403(a) ANNUITY PLANS, OR SECTION 403(b) TAX SHELTERED ANNUITIES SPECIAL
TAX NOTICE REGARDING PLAN PAYMENTS This notice explains
how you can continue to defer federal income tax on your retirement
savings in the [INSERT NAME OF PLAN] (the
"Plan") and contains important information you will need before
you decide how to receive your Plan benefits. This notice
is provided to you by [INSERT NAME OF THE PLAN ADMINISTRATOR OR, IN THE CASE OF A §403(b) TAX-SHELTERED
ANNUITY, THE PAYOR] (your "Plan Administrator") because
all or part of the payment that you will soon receive from the Plan
may be eligible for rollover by you or your Plan Administrator to a
traditional IRA or an eligible employer plan.
A rollover is a payment by you or the Plan Administrator of all
or part of your benefit to another plan or IRA that allows you to continue
to postpone taxation of that benefit until it is paid to you.
Your payment cannot be rolled over to a Roth IRA, a SIMPLE IRA,
or a Coverdell Education Savings Account (formerly known as an education
IRA). An "eligible
employer plan" includes a plan qualified under section 401(a) of
the Internal Revenue Code, including a 401(k) plan, profit-sharing plan,
defined benefit plan, stock bonus plan, and money purchase plan; a section
403(a) annuity plan; a section 403(b) tax-sheltered annuity; and an
eligible section 457(b) plan maintained by a governmental employer (governmental
457 plan). An eligible
employer plan is not legally required to accept a rollover.
Before you decide to roll over your payment to another employer
plan, you should find out whether the plan accepts rollovers and, if
so, the types of distributions it accepts as a rollover.
You should also find out about any documents that are required
to be completed before the receiving plan will accept a rollover.
Even if a plan accepts rollovers, it might not accept rollovers
of certain types of distributions, such as after-tax amounts.
If this is the case, and your distribution includes after-tax
amounts, you may wish instead to roll your distribution over to a traditional
IRA or split your rollover amount between the employer plan in which
you will participate and a traditional IRA.
If an employer plan accepts your rollover, the plan may restrict
subsequent distributions of the rollover amount or may require your
spouse's consent for any subsequent distribution.
A subsequent distribution from the plan that accepts your rollover
may also be subject to different tax treatment than distributions from
this Plan. Check with the
administrator of the plan that is to receive your rollover prior to
making the rollover. If you have
additional questions after reading this notice, you can contact your
plan administrator at [INSERT
PHONE NUMBER OR OTHER CONTACT INFORMATION]. SUMMARY There
are two ways you may be able to receive a Plan payment that is eligible
for rollover: (1)
Certain
payments can
be made directly to a traditional IRA that you establish or to an eligible
employer plan that will accept it and hold it for your benefit ("DIRECT
ROLLOVER"); or (2)
The
payment
can be PAID TO YOU. If
you choose a DIRECT ROLLOVER:
If
you choose to have a Plan payment that is eligible for rollover PAID
TO YOU:
Your Right to Waive the 30-Day Notice Period. Generally, neither a direct rollover nor a payment can be made
from the plan until at least 30 days after your receipt of this notice.
Thus, after receiving this notice, you have at least 30 days
to consider whether or not to have your withdrawal directly rolled over.
If you do not wish to wait until this 30-day notice period ends
before your election is processed, you may waive the notice period by
making an affirmative election indicating whether or not you wish to
make a direct rollover. Your
withdrawal will then be processed in accordance with your election as
soon as practical after it is received by the Plan Administrator. MORE
INFORMATION I. PAYMENTS THAT
CAN AND CANNOT BE ROLLED OVER II. DIRECT ROLLOVER III. PAYMENT PAID TO YOU IV. SURVIVING SPOUSES, [ALTERNATE PAYEES,]AND
OTHER BENEFICIARIES I. PAYMENTS
THAT CAN AND CANNOT BE ROLLED OVER Payments
from the Plan may be "eligible rollover distributions." This
means that they can be rolled over to a traditional IRA or to an eligible
employer plan that accepts rollovers.
Payments from a plan cannot be rolled over to a Roth IRA, a SIMPLE
IRA, or a Coverdell Education Savings Account.
Your Plan administrator should be able to tell you what portion
of your payment is an eligible rollover distribution. After-tax
Contributions. If
you made after-tax contributions to the Plan, these contributions may
be rolled into either a traditional IRA or to certain employer plans
that accept rollovers of the after-tax contributions.
The following rules apply: (a)
Rollover into a Traditional IRA. You can roll over your after-tax
contributions to a traditional IRA either directly or indirectly.
Your plan administrator should be able to tell you how much of
your payment is the taxable portion and how much is the after-tax portion.
If
you roll over after-tax contributions to a traditional IRA, it is your
responsibility to keep track of, and report to the Service on the applicable
forms, the amount of these after-tax contributions. This will enable the nontaxable amount of any future distributions
from the traditional IRA to be determined. Once
you roll over your after-tax contributions to a traditional IRA, those
amounts CANNOT later be rolled over to an employer plan. (b)
Rollover into an Employer Plan. You can roll over after-tax
contributions from an employer plan that is qualified under Code section
401(a) or a section 403(a) annuity plan to another such plan using a
direct rollover if the other plan provides separate accounting for amounts
rolled over, including separate accounting for the after-tax employee
contributions and earnings on those contributions.
You can also roll over after-tax contributions from a section
403(b) tax-sheltered annuity to another section 403(b) tax-sheltered
annuity using a direct rollover if the other tax-sheltered annuity provides
separate accounting for amounts rolled over, including separate accounting
for the after-tax employee contributions and earnings on those contributions. You CANNOT roll over after-tax contributions to a governmental
457 plan. If you want to
roll over your after-tax contributions to an employer plan that accepts
these rollovers, you cannot have the after-tax contributions paid to
you first. You must instruct
the Plan Administrator of this Plan to make a direct rollover on your
behalf. Also, you cannot first roll over after-tax contributions to
a traditional IRA and then roll over that amount into an employer plan.
The
following types of payments cannot be rolled over: Payments
Spread over Long Periods.
You cannot roll over 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:
Required
Minimum Payments. Beginning
when you reach age 70-1/2 or retire, whichever is later, a certain portion
of your payment cannot be rolled over because it is a "required
minimum payment" that must be paid to you.
Special rules apply if you own 5% or more of your employer.
The
Plan Administrator of this Plan should be able to tell you if your payment
includes amounts which cannot be rolled over. II. DIRECT
ROLLOVER
A DIRECT ROLLOVER is a direct payment of the amount of your Plan
benefits to a traditional IRA or an eligible employer plan that will
accept it. You can choose
a DIRECT ROLLOVER of all or any portion of your payment that is an eligible
rollover distribution, as described in Part I above.
You are not taxed on any taxable portion of your payment for
which you choose a DIRECT ROLLOVER until you later take it out of the
traditional IRA or eligible employer plan.
In addition, no income tax withholding is required for any taxable
portion of your Plan benefits for which you choose a DIRECT ROLLOVER.
This Plan might not let you choose a DIRECT ROLLOVER if your
distributions for the year are less than $200. DIRECT
ROLLOVER to a Traditional IRA.
You can open a traditional IRA to receive the direct
rollover. If you choose
to have your payment made directly to a traditional IRA, contact an
IRA sponsor (usually a financial institution) to find out how to have
your payment made in a direct rollover to a traditional IRA at that
institution. If you are
unsure of how to invest your money, you can temporarily establish a
traditional IRA to receive the payment.
However, in choosing a traditional IRA, you may wish to make
sure that the traditional IRA you choose will allow you to move all
or a part of your payment to another traditional IRA at a later date,
without penalties or other limitations.
See IRS Publication 590, Individual Retirement Arrangements,
for more information on traditional IRAs (including limits on how often
you can roll over between IRAs). DIRECT
ROLLOVER to a Plan. If
you are employed by a new employer that has an eligible employer plan,
and you want a direct rollover to that plan, ask the plan administrator
of that plan whether it will accept your rollover.
An eligible employer plan is not legally required to accept a
rollover. Even if your
new employer's plan does not accept a rollover, you can choose a DIRECT
ROLLOVER to a traditional IRA.
If the employer plan accepts your rollover, the plan may provide
restrictions on the circumstances under which you may later receive
a distribution of the rollover amount or may require spousal consent
to any subsequent distribution.
Check with the plan administrator of that plan before making
your decision. DIRECT
ROLLOVER of a Series of Payments.
If you receive a payment that can be rolled over to a traditional
IRA or an eligible employer plan that will accept it, and it is paid
in a series of payments for less than 10 years, your choice to make
or not make a DIRECT ROLLOVER for a payment will apply to all later
payments in the series until you change your election.
You are free to change your election for any later payment in
the series. Change
in Tax Treatment Resulting from a DIRECT ROLLOVER.
The tax treatment of any payment from the eligible employer plan
or traditional IRA receiving your DIRECT ROLLOVER might be different
than if you received your benefit in a taxable distribution directly
from the Plan. For example,
if you were born before January 1, 1936, you might be entitled to ten-year
averaging or capital gain treatment, as explained below.
However, if you have your benefit rolled over to a section 403(b)
tax-sheltered annuity, a governmental 457 plan, or a traditional IRA
in a DIRECT ROLLOVER, your benefit will no longer be eligible for that
special treatment. See
the sections below entitled "Additional 10% Tax if You Are under
Age 59-1/2 " and "Special Tax Treatment if You Were Born before
January 1, 1936." III. PAYMENT
PAID TO YOU If
your payment can be rolled over (see Part I above) and the payment is
made to you in cash, it is subject to 20% federal income tax withholding
on the taxable portion (state tax withholding may also apply).
The payment is taxed in the year you receive it unless, within
60 days, you roll it over to a traditional IRA or an eligible employer
plan that accepts rollovers. If
you do not roll it over, special tax rules may apply. Income
Tax Withholding: Mandatory
Withholding. If
any portion of your payment can be rolled over under Part I above and
you do not elect to make a DIRECT ROLLOVER, the Plan is required by
law to withhold 20% of the taxable amount.
This amount is sent to the IRS as federal income tax withholding.
For example, if you can roll over a taxable payment of $10,000, only
$8,000 will be paid to you because the Plan must withhold $2,000 as
income tax. However, when
you prepare your income tax return for the year, unless you make a rollover
within 60 days (see "Sixty-Day Rollover Option" below), you
must report the full $10,000 as a taxable payment from the Plan. You must report the $2,000 as tax withheld, and it will be
credited against any income tax you owe for the year. There will be no income tax withholding if your payments for
the year are less than $200. Voluntary
Withholding. If
any portion of your payment is taxable but cannot be rolled over under
Part I above, the mandatory withholding rules described above do not
apply. In this case, you
may elect not to have withholding apply to that portion.
If you do nothing, 10% will be taken out of this portion of your
payment for federal income tax withholding.
To elect out of withholding, ask the Plan Administrator for the
election form and related information. Sixty-Day
Rollover Option. If
you receive a payment that can be rolled over under Part I above, you
can still decide to roll over all or part of it to a traditional IRA
or to an eligible employer plan that accepts rollovers.
If you decide to roll over, you must contribute the amount of
the payment you received to a traditional IRA or eligible employer plan
within 60 days after you receive the payment.
The portion of your payment that is rolled over will not be taxed
until you take it out of the traditional IRA or the eligible employer
plan. You
can roll over up to 100% of your payment that can be rolled over under
Part I above, including an amount equal to the 20% of the taxable portion
that was withheld. If you
choose to roll over 100%, you must find other money within the 60-day
period to contribute to the traditional IRA or the eligible employer
plan, to replace the 20% that was withheld.
On the other hand, if you roll over only the 80% of the taxable
portion that you received, you will be taxed on the 20% that was withheld.
Example:
The taxable portion of your payment that can be rolled over under
Part I above is $10,000, and you choose to have it paid to you.
You will receive $8,000, and $2,000 will be sent to the IRS as
income tax withholding. Within
60 days after receiving the $8,000, you may roll over the entire $10,000
to a traditional IRA or an eligible employer plan.
To do this, you roll over the $8,000 you received from the Plan,
and you will have to find $2,000 from other sources (your savings, a
loan, etc.). In this case,
the entire $10,000 is not taxed until you take it out of the traditional
IRA or an eligible employer plan.
If you roll over the entire $10,000, when you file your income
tax return you may get a refund of part or all of the $2,000 withheld.
If,
on the other hand, you roll over only $8,000, the $2,000 you did not
roll over is taxed in the year it was withheld.
When you file your income tax return, you may get a refund of
part of the $2,000 withheld. (However,
any refund is likely to be larger if you roll over the entire $10,000.)
Additional
10% Tax If You Are under Age 59-1/2.
If you receive a payment before you reach age 59-1/2 and you
do not roll it over, then, in addition to the regular income tax, you
may have to pay an extra tax equal to 10% of the taxable portion of
the payment. The additional
10% tax generally does not apply to (1) payments that are paid after
you separate from service with your employer during or after the year
you reach age 55, (2) payments that are paid because you retire due
to disability, (3) payments that are paid as equal (or almost equal)
payments over your life or life expectancy (or your and your beneficiary's
lives or life expectancies), [(4) dividends paid with respect
to stock by an employee stock ownership plan (ESOP) as described in
Code section 404(k),]
(5) payments that are paid directly to the government to satisfy a federal
tax levy, [(6)
payments that are paid to an alternate payee under a qualified domestic
relations order,] or (7) payments that do not
exceed the amount of your deductible medical expenses.
See IRS Form 5329 for more information on the additional 10%
tax. The
additional 10% tax will not apply to distributions from a governmental
457 plan, except to the extent the distribution is attributable to an
amount you rolled over to that plan (adjusted for investment returns)
from another type of eligible employer plan or IRA.
Any amount rolled over from a governmental 457 plan to another
type of eligible employer plan or to a traditional IRA will become subject
to the additional 10% tax if it is distributed to you before you reach
age 59-1/2, unless one of the exceptions applies. Special
Tax Treatment If You Were Born before January 1, 1936.
If you receive a payment from a plan qualified under section
401(a) or a section 403(a) annuity plan that can be rolled over under
Part I and you do not roll it over to a traditional IRA or an eligible
employer plan, the payment will be taxed in the year you receive it.
However, if the payment qualifies as a "lump sum distribution,"
it may be eligible for special tax treatment. [(See
also "Employer Stock or Securities," below.)]
A lump sum distribution is a payment, within one year, of your entire
balance under the Plan (and certain other similar plans of the employer)
that is payable to you after you have reached age 59-1/2 or because
you have separated from service with your employer (or, in the case
of a self-employed individual, after you have reached age 59-1/2 or
have become disabled). For
a payment to be treated as a lump sum distribution, you must have been
a participant in the plan for at least five years before the year in
which you received the distribution.
The special tax treatment for lump sum distributions that may
be available to you is described below.
Ten-Year
Averaging. If you
receive a lump sum distribution and you were born before January 1,
1936, you can make a one-time election to figure the tax on the payment
by using "10-year averaging" (using 1986 tax rates).
Ten-year averaging often reduces the tax you owe. Capital
Gain Treatment. If
you receive a lump sum distribution and you were born before January 1,
1936, and you were a participant in the Plan before 1974, you may elect
to have the part of your payment that is attributable to your pre-1974
participation in the Plan taxed as long-term capital gain at a rate
of 20%. There
are other limits on the special tax treatment for lump sum distributions.
For example, you can generally elect this special tax treatment
only once in your lifetime, and the election applies to all lump sum
distributions that you receive in that same year.
You may not elect this special tax treatment if you rolled amounts
into this Plan from a 403(b) tax-sheltered annuity contract or from
an IRA not originally attributable to a qualified employer plan.
If you have previously rolled over a distribution from this Plan
(or certain other similar plans of the employer), you cannot use this
special averaging treatment for later payments from the Plan.
If you roll over your payment to a traditional IRA, governmental
457 plan, or 403(b) tax-sheltered annuity, you will not be able to use
special tax treatment for later payments from that IRA, plan, or annuity. Also, if you roll over only a portion of your payment to a
traditional IRA, governmental 457 plan, or 403(b) tax-sheltered annuity,
this special tax treatment is not available for the rest of the payment.
See IRS Form 4972 for additional information on lump sum distributions
and how you elect the special tax treatment. [Employer Stock or Securities.
There is a special rule for a payment from the Plan that includes
employer stock (or other employer securities).
To use this special rule, 1) the payment must qualify as a lump
sum distribution, as described above, except that you do not need five
years of plan participation, or 2) the employer stock included in the
payment must be attributable to "after-tax" employee contributions,
if any. Under this special
rule, you may have the option of not paying tax on the "net unrealized
appreciation" of the stock until you sell the stock.
Net unrealized appreciation generally is the increase in the
value of the employer stock while it was held by the Plan.
For example, if employer stock was contributed to your Plan account
when the stock was worth $1,000 but the stock was worth $1,200 when
you received it, you would not have to pay tax on the $200 increase
in value until you later sold the stock.
You may instead elect not to have the special rule apply to the
net unrealized appreciation. In
this case, your net unrealized appreciation will be taxed in the year
you receive the stock, unless you roll over the stock.
The stock can be rolled over to a traditional IRA or another
eligible employer plan, either in a direct rollover or a rollover that
you make yourself. Generally,
you will no longer be able to use the special rule for net unrealized
appreciation if you roll the stock over to a traditional IRA or another
eligible employer plan.
If you receive only employer stock in a payment that can be rolled
over, no amount will be withheld from the payment.
If you receive cash or property other than employer stock, as
well as employer stock, in a payment that can be rolled over, the 20%
withholding amount will be based on the entire taxable amount paid to
you (including the value of the employer stock determined by excluding
the net unrealized appreciation).
However, the amount withheld will be limited to the cash or property
(excluding employer stock) paid to you.
If you receive employer stock in a payment that qualifies as
a lump sum distribution, the special tax treatment for lump sum distributions
described above (such as 10-year averaging) also may apply.
See IRS Form 4972 for additional information on these rules.]
[Repayment of Plan Loans.
If your employment ends and you have an outstanding loan from
your Plan, your employer may reduce (or "offset") your balance
in the Plan by the amount of the loan you have not repaid.
The amount of your loan offset is treated as a distribution to
you at the time of the offset and will be taxed unless you roll over
an amount equal to the amount of your loan offset to another qualified
employer plan or a traditional IRA within 60 days of the date of the
offset. If the amount of
your loan offset is the only amount you receive or are treated as having
received, no amount will be withheld from it.
If you receive other payments of cash or property from the Plan,
the 20% withholding amount will be based on the entire amount paid to
you, including the amount of the loan offset.
The amount withheld will be limited to the amount of other cash
or property paid to you (other than any employer securities).
The amount of a defaulted plan loan that is a taxable deemed
distribution cannot be rolled over.] IV. SURVIVING
SPOUSES, [ALTERNATE PAYEES,]
AND
OTHER BENEFICIARIES In
general, the rules summarized above that apply to payments to employees
also apply to payments to surviving spouses of employees [and
to spouses or former spouses who are "alternate payees."
You are an alternate payee if your interest in the Plan results from
a "qualified domestic relations order," which is an order
issued by a court, usually in connection with a divorce or legal separation.] If
you are a surviving spouse [or
an alternate payee],
you may choose to have a payment that can be rolled over, as described
in Part I above, paid in a DIRECT ROLLOVER to a traditional IRA
or to an eligible employer plan or paid to you.
If you have the payment paid to you, you can keep it or roll
it over yourself to a traditional IRA or to an eligible employer plan.
Thus, you have the same choices as the employee. If
you are a beneficiary other than a surviving spouse [or
an alternate payee],
you cannot choose a direct rollover, and you cannot roll over the payment
yourself. If
you are a surviving spouse,
[or
an alternate payee,]
or another beneficiary, your payment
is generally not subject to the additional 10% tax described in Part
III above, even if you are younger than age 59-1/2. If
you are a surviving spouse,
[or an alternate payee,]
or another beneficiary, you may be able to use the special tax treatment
for lump sum distributions and the special rule for payments that include
employer stock, as described in Part III above.
If you receive a payment because of the employee's death, you
may be able to treat the payment as a lump sum distribution if the employee
met the appropriate age requirements, whether or not the employee had
5 years of participation in the Plan. HOW
TO OBTAIN ADDITIONAL INFORMATION This
notice summarizes only the federal (not state or local) tax rules that
might apply to your payment. The rules described above are complex and contain many conditions
and exceptions that are not included in this notice. Therefore, you may want to consult with the Plan Administrator
or a professional tax advisor before
you take a payment of your benefits from your Plan. Also, you can find more specific information on the tax treatment
of payments from qualified employer plans in IRS Publication 575, Pension
and Annuity Income, and IRS Publication 590, Individual
Retirement Arrangements. These
publications are available from your local IRS office, on the IRS's
Internet Web Site at www.irs.gov,
or by calling 1-800-TAX-FORMS. 923969.1
|
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Greenhaven Drive, Suite 302 Sacramento, CA 95831 • 916-394-2075
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916-392-0295 (Fax) |
| Last Update: November 16, 2006 |
