Rollovers(p77)

If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can defer tax on the distribution by rolling it over to another qualified retirement plan or a traditional IRA.

For this purpose, the following plans are qualified retirement plans.

• A qualified employee plan.
• A qualified employee annuity.
• A tax-sheltered annuity plan (403(b) plan).
• An eligible state or local government section 457 deferred compensation plan.

Generally, an eligible rollover distribution is any distribution of all or any part of the balance to your credit in a qualified retirement plan. For information about exceptions to eligible rollover distributions, see Publication 575.

You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another qualified retirement plan that is a qualified employee plan or a 403(b) plan, or to a traditional or Roth IRA. The transfer must be made either through a direct rollover to a qualified plan or 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional or Roth IRA.

If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution.

Any after-tax contributions that you roll over into your traditional IRA, become part of your basis (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. For more information, see the Form 8606 instructions.

You can choose to have any part or all of an eligible rollover distribution paid directly to another qualified retirement plan that accepts rollover distributions or to a traditional or Roth IRA. If you choose the direct rollover option, or have an automatic rollover, no tax will be withheld from any part of the distribution that is directly paid to the trustee of the other plan.

If an eligible rollover distribution is paid to you, 20% generally will be withheld for income tax. However, the full amount is treated as distributed to you even though you actually receive only 80%. You generally must include in income any part (including the part withheld) that you do not rollover within 60 days to another qualified retirement plan or to a traditional or Roth IRA. (See Pensions and Annuities under Tax Withholding for 2011 in chapter 4.)

You generally must complete the rollover of an eligible rollover distribution paid to you by the 60th day following the day on which you receive the distribution from your employer's plan. (If an amount distributed to you becomes a frozen deposit in a financial institution during the 60-day period after you receive it, the rollover period is extended for the period during which the distribution is in a frozen deposit in a financial institution.)

The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control.

The administrator of a qualified plan must give you a written explanation of your distribution options within a reasonable period of time before making an eligible rollover distribution.

You may be able to roll over tax free all or part of a distribution from a qualified retirement plan that you receive under a QDRO. If you receive the distribution as an employee's spouse or former spouse (not as a nonspousal beneficiary), the rollover rules apply to you as if you were the employee. You can roll over the distribution from the plan into a traditional IRA or to another eligible retirement plan. See Publication 575 for more information on benefits received under a QDRO.

You may be able to roll over tax free all or part of a distribution from a qualified retirement plan you receive as the surviving spouse of a deceased employee. The rollover rules apply to you as if you were the employee. You can roll over a distribution into a qualified retirement plan or a traditional or Roth IRA. For a rollover to a Roth IRA, see Rollovers to Roth IRAs, later.

A distribution paid to a beneficiary other than the employee's surviving spouse is generally not an eligible rollover distribution. However, see Rollovers by nonspouse beneficiary, next.

If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you may be able to roll over tax free all or a portion of a distribution you receive from an eligible retirement plan of the employee. The distribution must be a direct trustee-to-trustee transfer to your traditional or Roth IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA. For information on inherited IRAs, see Publication 590, Individual Retirement Arrangements (IRAs).

If you redeem retirement bonds purchased under a qualified bond purchase plan, you can roll over the proceeds that exceed your basis tax free into an IRA as discussed in Publication 590 or qualified employer plan.

You can roll over an eligible rollover distribution from a designated Roth account only into another designated Roth account or a Roth IRA. If you want to roll over the part of the distribution that is not included in income, you must make a direct rollover of the entire distribution or you can roll over the entire amount (or any portion) to a Roth IRA. For more information on rollovers from designated Roth accounts, see Publication 575.

After September 27, 2010, if you are a participant in a 401(k) or 403(b) plan, your plan may permit you to roll over amounts in those plans to a designated Roth account within the same plan. The rollover of any untaxed money must be included in income. For 2010 in-plan Roth rollovers, the taxable amount is included in income in equal amounts in 2011 and 2012. You can choose to include the entire amount in income in 2010. You must report in-plan Roth rollovers on Form 8606. See Publication 575 for more information.

If you are including the taxable amount in income in 2011 and 2012 and take a distribution from the designated Roth account in 2010 that is allocable to the in-plan rollover, you may be required to include a portion of the taxable amount in income in 2010. This amount is determined on Form 8606. See Form 8606 and its instructions for more information.

You can roll over distributions directly from a qualified retirement plan (other than a designated Roth account) to a Roth IRA .

You must include in your gross income distributions from a qualified retirement plan (other than a designated Roth account) that you would have had to include in income if you had not rolled them over into a Roth IRA. You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions to the plan that were taxable to you when paid. In addition, the 10% tax on early distributions does not apply.

For rollovers from qualified retirement plans to a Roth IRA in 2010, any amounts that are required to be included in income are included in income in equal amounts in 2011 and 2012. If you elect otherwise, you can choose to include the entire amount in income in 2010.

You may be required to include some, or all, of a 2010 rollover from a qualified employer plan to a Roth IRA in income in 2010 if you also take a Roth IRA distribution in 2010. See Form 8606 and its instructions for more information.

You must file Form 8606 with your tax return to report 2010 rollovers from qualified retirement plans (other than designated Roth accounts) to Roth IRAs (unless you recharacterized the entire amount), and to figure the amount to include in income. See the Instructions for Form 8606 for more information.

For more information on the rules for rolling over distributions, see Publication 575.