Choosing the right tax treatment for lump-sum distributions maximizes recipient's savings

Article Abstract:

Guidelines for selecting the best tax treatment of a lump-sum distribution from a retirement plan are discussed. Penalties can still be avoided by transferring the distribution to an IRA, which also defers any tax on the distribution until withdrawals are made. The number of options available depend largely on the age of the recipient. Taxpayers born before 1936 who do not reinvest in an IRA can pay ordinary income tax, use ten-year averaging, or use five-year averaging. All of these options have a possible penalty. Taxpayers born after 1936 who receive a lump-sum and do not rollover the distribution into another plan must pay a 10% tax on the entire amount, plus whatever other taxes are due. Techniques for selecting the best tax option are discussed.

Retirement income, Deferred compensation

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Evaluating the tax consequences of terminating an overfunded retirement plan

Article Abstract:

Employer terminations of over-funded defined benefit plans that generate surplus assets are subject to income and excise taxes. There are several options available to employers that permit the tax-free use of surplus assets. These include transferring the surplus to an employee stock ownership plan, merging the assets of the terminated plan into a continuing plan, or creating a floor-offset plan. The advantages and disadvantages of these options are discussed.

Accounting and auditing, Pension funds, Employee stock options

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