Planning for minimum tax liability on distributions from qualified plans

Article Abstract:

When employees receive distributions from retirement plans sponsored by former employers (either at retirement or dates of employment termination), proper planning can reduce the employee's tax liability. Tax planning alternatives analyzed include: lump-sum distributions of benefit payments, special tax treatments, roll-overs to individual retirement accounts of funds received from employer-sponsored retirement plans, and extended distribution periods. The taxation of such plan distributions are governed by Sections 401(a) and 402(e) of the Internal Revenue Code, and by Prop. Reg. 1.402(e). Also discussed are the possible effects of the Tax Reform Bill of 1985 (H.R. 3838) on the taxation of benefits received from retirement and pension plans.

Analysis

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Many dealings with qualified plans will result in a substantial penalty

Article Abstract:

Retirement and pension plans available from small business employers frequently are operated as tax shelters for these small businesses, despite the passage of the Employee Retirement Income Security Act. In consequence thereof, the Internal Revenue Service has enacted Section 4975 of the Code to impose a 5 percent tax on transactions prohibited due to the involvement of disqualified persons. The application of this penalty tax, the definition of prohibited transactions, the statutory exceptions to this regulation and the retroactive exemptions to the rule are discussed in some detail.

Methods, Economic aspects, Tax shelters

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When and how a distribution from a qualified plan should be rolled over

Article Abstract:

Rollovers involve the transference of income received from one retirement plan or pension trust into another eligible retirement plan in order to avoid taxation on the distributed amount. The types of distributions that may be rolled over, the rollover options available, accounting for employee contributions, the forms of distribution and their effects on taxation, and other considerations when planning a retirement income rollover are discussed.

Employee benefits

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