CHAPTER 2
QUALIFIED RETIREMENT PLANS
§ 2.01 Overview of Taxation of Participants in Qualified Retirement Plans
-----[1] Benefit Payments Taxable When Received
-----[2] Nontaxable Portion of Annuity Payments
-----[3] Nontaxable Portion of Non-Annuity Payments
-----[4] Penalty Tax on Premature Distributions
-----[5] Requirement for Spousal Annuity
-----[6] Distribution of Employer Securities
-----[7] Transfers to an IRA or Other Plan
-----[8] Borrowing from the Plan
-----[9] Divorce Property Settlements
-----[10] Assignment of Benefits in the Plan
-----[11] Distributions of Annuity Contracts
-----[12] Distributions of Life Insurance Contracts
-----[13] Community Property Interest
-----[14] Civilian and Military Employees of the Federal Government
-----[15] Income Tax Withholding
-----[16] Retirees Born Before 1936
§ 2.02 Categories and Classifications of Qualified Retirement Plans
§ 2.03 Qualified Retirement Plans Receiving Special Tax Treatment
-----[1] Qualified Governmental Plans
-----[2] Qualified Church Plans
-----[3] Section 403(b) Plans
-----[4] Tier 2 Railroad Retirement Benefits
-----[5] Self-Employed Individuals
§ 2.04 Date Retirement Benefits Begin under Qualified Retirement Plans
-----[1] Limits on Time for Payments Generally
-----[2] Earliest Date Retirement Benefits May Begin Without Penalty
-----[3] Commencement of Distributions Under Section 401(k) and 403(b) Plans
-----[4] Earliest Date Plans Are Required to Begin Benefit Payments
-----[5] Latest Date Retirement Benefits May Begin
§ 2.05 Retiree Investment in a Plan (or a Plan Program)
-----[1] Identification of Plan Programs
-----[2] Determination of Retiree Investment in a Plan Program
----------[a] Formula for Determining Retiree Investment in a Plan Program
----------[b] Classification of Some Specific Types of Employee Contributions
---------------[i] Designated Employee Contributions
---------------[ii] Contributions Made at an Employee’s Election
---------------[iii] Contributions Allocable to a Plan Program Providing Life Insurance
---------------[iv] Contributions Allocable to Accident and Health Benefits
---------------[v] Payments of Principal and Interest on Nonqualified Plan Loans
---------------[vi] Contributions of Nontaxable Income
---------------[vii] Contributions While an Expatriate
---------------[viii] Deductible Employee Contributions Not Included
---------------[ix] Railroad Retirement Taxes
----------[c] Return of Investment in Plan Program
----------[d] Investment in a Plan or Plan Program Illustrated
----------[e] Self-Employed Individual’s Investment in a Plan or Plan Program
§ 2.06 Taxation of Plan Annuity Payments
-----[1] Establishing an Annuity
-----[2] Plan Payments Taxed as an Annuity
----------[a] Characteristics of Plan Payments Taxed as Annuity Payments
----------[b] Variable Annuity Payments
----------[c] Interest Payments Not Annuity Payments
-----[3] Taxable and Nontaxable Portions of Plan Annuity Payments
----------[a] Determining Taxable and Nontaxable Portions Generally
----------[b] Annuity Payments for Life of Retiree
---------------[i] Types of Payouts over Retiree's Lifetime
---------------[ii] Monthly Periodic Payments
---------------[iii] Periodic Payments That Are Quarterly, Semiannual, Annual, Etc.
----------[c] Annuity Payments for Lifetimes of Retiree and Beneficiary(s)
---------------[i] Types of Payouts over Lifetimes of Retiree and Beneficiaries
---------------[ii] Monthly Periodic Payments
---------------[iii] Periodic Payments That Are Quarterly, Semiannual, Annual, Etc.
---------------[iv] Different Annuity Amounts Paid to Retiree and Beneficiaries
---------------[v] Two Annuities Paid Under Single Plan Program
----------[d] Payments under a Fixed Term Annuity
----------[e] Increases or Decreases in the Annuity Payment
----------[f] Multiple Annuity Recipients or Multiple Annuities
----------[g] A Plan’s Recoupment of Annuity Overpayments
-----[4] Recovered and Unrecovered Investment in a Plan Annuity
----------[a] Recovered and Unrecovered Investment Generally
----------[b] Fully Recovered Investment in the Annuity
----------[c] Unrecovered Investment in the Annuity
-----[5] Taxation of Variable Annuities Provided by Plans
----------[a] Variable Annuities Defined
----------[b] Computed Nontaxable Amount in Excess of Actual Payments
----------[c] Recovered or Unrecovered Investment in the Annuity
-----[6] Nontaxable Annuities for Survivors of Slain Public Safety Officers
§ 2.07 Taxation of Non-Annuity Distributions
-----[1] Non-Annuity Distributions Defined
-----[2] Certain Non-Annuity Payments Not Taxable
-----[3] Partially Taxable Non-Annuity Payments
-----[4] Fully Taxable Non-Annuity Payments
-----[5] Deduction of Loss on Final Non-Annuity Distribution
§ 2.08 Special Treatment of Distributions of Employee Contributions
-----[1] Potential Tax Savings
-----[2] Pre-1987 Employee Contributions
§ 2.09 Plan Distributions of Appreciated Employer Securities
-----[1] Qualified Retirement Plans Holding Employer Securities
-----[2] Employer Securities in Lump Sum Distributions
-----[3] Employer Securities in Other Distributions
-----[4] Post-Distribution Sale of Employer Securities
-----[5] Rollover of Employer Securities to a Different Plan or IRA
§ 2.10 Nontaxable Transfers or Rollovers to a Different Plan or IRA
-----[1] Transferring Plan Funds to an IRA Generally
-----[2] Methods of Transferring Plan Funds to an IRA
-----[3] Requirements for an Indirect Rollover
----------[a] Indirect Rollovers Generally
----------[b] Partial Indirect Rollovers
----------[c] IRS Waivers of the 60-Day Rollover Requirement
---------------[i] Favorable IRS Letter Rulings Approving Waiver
--------------------[A] IRS Considerations for Approving Waiver
--------------------[B] Favorable IRS Letter Rulings Due to Financial Institution Errors
--------------------[C] Favorable IRS Letter Rulings Due to Death, Disability, or Illness
--------------------[D] Favorable IRS Letter Rulings Due to Distribution Check Not Cashed
--------------------[E] Favorable IRS Letter Rulings Due to Misleading or Nonexistent Advice
--------------------[F] Favorable IRS Letter Rulings Due to Mishandling of Trustee Rollovers
--------------------[G] Favorable IRS Letter Rulings Due to Casualty or Disaster
--------------------[H] Favorable IRS Letter Rulings Due to Events beyond Taxpayer’s Control
--------------------[I] Favorable IRS Letter Rulings Where Equity Requires Waiver
---------------[ii] Unfavorable IRS Letter Rulings
--------------------[A] Unfavorable IRS Letter Rulings: Distribution Not Eligible for Rollover
--------------------[B] Unfavorable IRS Letter Rulings: Trustee Declines to Provide Tax Information
--------------------[C] Unfavorable IRS Letter Rulings: Funds Used for Personal Expenses, etc.
--------------------[D] Unfavorable IRS Letter Rulings: Unconsummated Personal Use Intent
--------------------[E] Unfavorable IRS Letter Rulings: Initial Absence of Rollover Intent
---------------[iii] Judicial Review of Unfavorable Rulings
----------[d] Extension of 60-Day Rollover Period for Frozen Accounts
-----[4] No Rollovers for Certain Types of Distributions
-----[5] Rollovers of Distributions that Include Property Other than Cash
-----[6] Rollovers by Surviving Spouse
-----[7] Rollovers by Nonspouse Beneficiaries
-----[8] Rollovers that Include Retiree Investment
Chapter 2 continued on next page.
Continued on next page
To previous page
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QUALIFIED RETIREMENT PLANS
§ 2.01 Overview of Taxation of Participants in Qualified Retirement Plans
-----[1] Benefit Payments Taxable When Received
-----[2] Nontaxable Portion of Annuity Payments
-----[3] Nontaxable Portion of Non-Annuity Payments
-----[4] Penalty Tax on Premature Distributions
-----[5] Requirement for Spousal Annuity
-----[6] Distribution of Employer Securities
-----[7] Transfers to an IRA or Other Plan
-----[8] Borrowing from the Plan
-----[9] Divorce Property Settlements
-----[10] Assignment of Benefits in the Plan
-----[11] Distributions of Annuity Contracts
-----[12] Distributions of Life Insurance Contracts
-----[13] Community Property Interest
-----[14] Civilian and Military Employees of the Federal Government
-----[15] Income Tax Withholding
-----[16] Retirees Born Before 1936
§ 2.02 Categories and Classifications of Qualified Retirement Plans
§ 2.03 Qualified Retirement Plans Receiving Special Tax Treatment
-----[1] Qualified Governmental Plans
-----[2] Qualified Church Plans
-----[3] Section 403(b) Plans
-----[4] Tier 2 Railroad Retirement Benefits
-----[5] Self-Employed Individuals
§ 2.04 Date Retirement Benefits Begin under Qualified Retirement Plans
-----[1] Limits on Time for Payments Generally
-----[2] Earliest Date Retirement Benefits May Begin Without Penalty
-----[3] Commencement of Distributions Under Section 401(k) and 403(b) Plans
-----[4] Earliest Date Plans Are Required to Begin Benefit Payments
-----[5] Latest Date Retirement Benefits May Begin
§ 2.05 Retiree Investment in a Plan (or a Plan Program)
-----[1] Identification of Plan Programs
-----[2] Determination of Retiree Investment in a Plan Program
----------[a] Formula for Determining Retiree Investment in a Plan Program
----------[b] Classification of Some Specific Types of Employee Contributions
---------------[i] Designated Employee Contributions
---------------[ii] Contributions Made at an Employee’s Election
---------------[iii] Contributions Allocable to a Plan Program Providing Life Insurance
---------------[iv] Contributions Allocable to Accident and Health Benefits
---------------[v] Payments of Principal and Interest on Nonqualified Plan Loans
---------------[vi] Contributions of Nontaxable Income
---------------[vii] Contributions While an Expatriate
---------------[viii] Deductible Employee Contributions Not Included
---------------[ix] Railroad Retirement Taxes
----------[c] Return of Investment in Plan Program
----------[d] Investment in a Plan or Plan Program Illustrated
----------[e] Self-Employed Individual’s Investment in a Plan or Plan Program
§ 2.06 Taxation of Plan Annuity Payments
-----[1] Establishing an Annuity
-----[2] Plan Payments Taxed as an Annuity
----------[a] Characteristics of Plan Payments Taxed as Annuity Payments
----------[b] Variable Annuity Payments
----------[c] Interest Payments Not Annuity Payments
-----[3] Taxable and Nontaxable Portions of Plan Annuity Payments
----------[a] Determining Taxable and Nontaxable Portions Generally
----------[b] Annuity Payments for Life of Retiree
---------------[i] Types of Payouts over Retiree's Lifetime
---------------[ii] Monthly Periodic Payments
---------------[iii] Periodic Payments That Are Quarterly, Semiannual, Annual, Etc.
----------[c] Annuity Payments for Lifetimes of Retiree and Beneficiary(s)
---------------[i] Types of Payouts over Lifetimes of Retiree and Beneficiaries
---------------[ii] Monthly Periodic Payments
---------------[iii] Periodic Payments That Are Quarterly, Semiannual, Annual, Etc.
---------------[iv] Different Annuity Amounts Paid to Retiree and Beneficiaries
---------------[v] Two Annuities Paid Under Single Plan Program
----------[d] Payments under a Fixed Term Annuity
----------[e] Increases or Decreases in the Annuity Payment
----------[f] Multiple Annuity Recipients or Multiple Annuities
----------[g] A Plan’s Recoupment of Annuity Overpayments
-----[4] Recovered and Unrecovered Investment in a Plan Annuity
----------[a] Recovered and Unrecovered Investment Generally
----------[b] Fully Recovered Investment in the Annuity
----------[c] Unrecovered Investment in the Annuity
-----[5] Taxation of Variable Annuities Provided by Plans
----------[a] Variable Annuities Defined
----------[b] Computed Nontaxable Amount in Excess of Actual Payments
----------[c] Recovered or Unrecovered Investment in the Annuity
-----[6] Nontaxable Annuities for Survivors of Slain Public Safety Officers
§ 2.07 Taxation of Non-Annuity Distributions
-----[1] Non-Annuity Distributions Defined
-----[2] Certain Non-Annuity Payments Not Taxable
-----[3] Partially Taxable Non-Annuity Payments
-----[4] Fully Taxable Non-Annuity Payments
-----[5] Deduction of Loss on Final Non-Annuity Distribution
§ 2.08 Special Treatment of Distributions of Employee Contributions
-----[1] Potential Tax Savings
-----[2] Pre-1987 Employee Contributions
§ 2.09 Plan Distributions of Appreciated Employer Securities
-----[1] Qualified Retirement Plans Holding Employer Securities
-----[2] Employer Securities in Lump Sum Distributions
-----[3] Employer Securities in Other Distributions
-----[4] Post-Distribution Sale of Employer Securities
-----[5] Rollover of Employer Securities to a Different Plan or IRA
§ 2.10 Nontaxable Transfers or Rollovers to a Different Plan or IRA
-----[1] Transferring Plan Funds to an IRA Generally
-----[2] Methods of Transferring Plan Funds to an IRA
-----[3] Requirements for an Indirect Rollover
----------[a] Indirect Rollovers Generally
----------[b] Partial Indirect Rollovers
----------[c] IRS Waivers of the 60-Day Rollover Requirement
---------------[i] Favorable IRS Letter Rulings Approving Waiver
--------------------[A] IRS Considerations for Approving Waiver
--------------------[B] Favorable IRS Letter Rulings Due to Financial Institution Errors
--------------------[C] Favorable IRS Letter Rulings Due to Death, Disability, or Illness
--------------------[D] Favorable IRS Letter Rulings Due to Distribution Check Not Cashed
--------------------[E] Favorable IRS Letter Rulings Due to Misleading or Nonexistent Advice
--------------------[F] Favorable IRS Letter Rulings Due to Mishandling of Trustee Rollovers
--------------------[G] Favorable IRS Letter Rulings Due to Casualty or Disaster
--------------------[H] Favorable IRS Letter Rulings Due to Events beyond Taxpayer’s Control
--------------------[I] Favorable IRS Letter Rulings Where Equity Requires Waiver
---------------[ii] Unfavorable IRS Letter Rulings
--------------------[A] Unfavorable IRS Letter Rulings: Distribution Not Eligible for Rollover
--------------------[B] Unfavorable IRS Letter Rulings: Trustee Declines to Provide Tax Information
--------------------[C] Unfavorable IRS Letter Rulings: Funds Used for Personal Expenses, etc.
--------------------[D] Unfavorable IRS Letter Rulings: Unconsummated Personal Use Intent
--------------------[E] Unfavorable IRS Letter Rulings: Initial Absence of Rollover Intent
---------------[iii] Judicial Review of Unfavorable Rulings
----------[d] Extension of 60-Day Rollover Period for Frozen Accounts
-----[4] No Rollovers for Certain Types of Distributions
-----[5] Rollovers of Distributions that Include Property Other than Cash
-----[6] Rollovers by Surviving Spouse
-----[7] Rollovers by Nonspouse Beneficiaries
-----[8] Rollovers that Include Retiree Investment
Chapter 2 continued on next page.
Continued on next page
To previous page
To Home page
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The author intends that this website provide accurate and authoritative information on the subject
matter covered. However, the information provided on this website is not a substitute for the advice of
an attorney, accountant, or other professional; and the author is not offering legal, accounting, or
other professional advice. The material presented on this website is not intended for use, and may
not be used, to avoid tax penalties. If you need legal advice or other professional help, you should
seek (from an independent attorney, accountant, or other competent professional) advice based on
your own particular circumstances.
matter covered. However, the information provided on this website is not a substitute for the advice of
an attorney, accountant, or other professional; and the author is not offering legal, accounting, or
other professional advice. The material presented on this website is not intended for use, and may
not be used, to avoid tax penalties. If you need legal advice or other professional help, you should
seek (from an independent attorney, accountant, or other competent professional) advice based on
your own particular circumstances.
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