Lewes CPA
officeProgar & Company, P.A.
Certified Public Accounting services for businesses and individuals
Lump-sum distribution-direct rollover (MS Word)
Lump-sum distribution-direct rollover (.pdf)
Lump-sum distribution—direct rollover
Dear Reader:
I am writing this letter to explain the “roll over” options that are
available to your employees who are eligible, upon retirement or
other separation from service, for lump-sum distributions from your
profit-sharing plan.
Employees who receive a lump-sum distribution upon separation from
service can elect to roll over the lump sum distribution to an IRA
or, if they continue to work and are covered by another plan which
will accept rollovers, to another qualified plan. This rollover,
which is tax-free and further defers the tax on the lump sum while
allowing continual tax-free buildup, can be accomplished either by a
direct, trustee-to-trustee transfer from your plan to an IRA or
another plan, or by a distribution to the employee and a transfer by
him within 60 days to a rollover IRA or another plan.
The employee's individual circumstances will dictate whether a lump
sum should be rolled over, or whether an employee should elect
ten-year averaging, if applicable.
You must use the greatest care in explaining these roll over options
and their tax consequences to your employees. These are major,
once-in-a-lifetime decisions for your employees, and you will want
to guard against the possibility that an employee who misunderstands
and makes the “wrong” decision for him or her will seek to hold you
legally responsible.
We would be happy to discuss these important options in greater
detail, or to prepare a detailed analysis of these rules. Please
give me a call.