Rollovers(p26)

If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can generally defer tax on the distribution by rolling it over to another qualified retirement plan or a traditional IRA. You do not include the amount rolled over in your income until you receive it in a distribution from the recipient plan or IRA without rolling over that distribution. (For information about rollovers from traditional IRAs, see chapter 1 of Publication 590.)

If you roll over the distribution to a traditional IRA, you cannot deduct the amount rolled over as an IRA contribution. When you later withdraw it from the IRA, you cannot use the optional methods discussed earlier under Lump-Sum Distributions to figure the tax.

Self-employed individuals are generally treated as employees for the rules on the tax treatment of distributions, including the rules for rollovers.

See Designated Roth accounts, later, for information on rollovers (including in-plan Roth rollovers) related to those accounts. Also, see Rollovers to Roth IRAs, later, for information on rollovers from a qualified retirement plan to a Roth 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.

An eligible rollover distribution is any distribution of all or any part of the balance to your credit in a qualified retirement plan except:

1. Any of a series of substantially equal distributions paid at least once a year over:
   1. Your lifetime or life expectancy,
   2. The joint lives or life expectancies of you and your beneficiary, or
   3. A period of 10 years or more,
2. A required minimum distribution (discussed later under Tax on Excess Accumulation),
3. Hardship distributions,
4. Corrective distributions of excess contributions or excess deferrals, and any income allocable to these distributions, or of excess annual additions and any allocable gains (see Corrective distributions of excess plan contributions, at the beginning of Taxation of Nonperiodic Payments, earlier),
5. A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan (see Loans Treated as Distributions, earlier),
6. Dividends paid on employer securities, and
7. The cost of life insurance coverage.

In addition, a distribution to the plan participant's beneficiary generally is not treated as an eligible rollover distribution. However, see Qualified domestic relations order (QDRO), Rollover by surviving spouse, and Rollovers by nonspouse beneficiary, later.

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, Nondeductible IRAs, for the year of the distribution. For more information, see the Form 8606 instructions.

If an eligible rollover distribution is paid to you, the payer must withhold 20% of it. This applies even if you plan to roll over the distribution to another qualified retirement plan or to an IRA. However, you can avoid withholding by choosing the direct rollover option, discussed later. Also, see Choosing the right option at the end of this discussion.

An eligible rollover distribution is not subject to withholding to the extent it consists of net unrealized appreciation from employer securities that can be excluded from your gross income. (For a discussion of the tax treatment of a distribution of employer securities, see Figuring the Taxable Amount under Taxation of Nonperiodic Payments, earlier.)

In addition, withholding from an eligible rollover distribution paid to you is not required if:

• The distribution and all previous eligible rollover distributions you received during the tax year from the same plan (or, at the payer's option, from all your employer's plans) total less than $200, or
• The distribution consists solely of employer securities, plus cash of $200 or less in lieu of fractional shares.

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.

There is an automatic rollover requirement for mandatory distributions. A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. You can choose to have the distribution paid directly to you or rolled over directly to your traditional or Roth IRA or another qualified retirement plan. If you do not make this choice, the plan administrator will automatically roll over the distribution into an IRA of a designated trustee or issuer.

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 any part of the eligible rollover distribution is paid to you, the payer must generally withhold 20% of it for income tax.

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 roll over within 60 days to another qualified retirement plan or to a traditional or Roth IRA.

If you are under age 591/2 when a distribution is paid to you, you may have to pay a 10% tax (in addition to the regular income tax) on the taxable part (including any tax withheld) that you do not roll over. See Tax on Early Distributions, later.

If you receive a lump-sum distribution, it may qualify for special tax treatment. See Lump-Sum Distributions, earlier. However, if you roll over any part of the distribution, the part you keep does not qualify for special tax treatment.

You receive an eligible rollover distribution of $10,000 from your employer's qualified employee plan. The payer withholds $2,000, so you actually receive $8,000. If you want to roll over the entire $10,000 to postpone including that amount in your income, you will have to get $2,000 from some other source to add to the $8,000 you actually received.

If you roll over only $8,000, you must include the $2,000 not rolled over in your income for the distribution year. Also, you may be subject to the 10% additional tax on the $2,000 if it was distributed to you before you reached age 591/2.

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.

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.

In the previous example, you received the distribution on June 30, 2012. To postpone including it in your income, you must complete the rollover by August 29, 2012, the 60th day following June 30.

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. An amount is a frozen deposit if you cannot withdraw it because of either:

• The bankruptcy or insolvency of the financial institution, or
• A restriction on withdrawals by the state in which the institution is located because of the bankruptcy or insolvency (or threat of it) of one or more financial institutions in the state.

The 60-day rollover period is extended by the period for which the amount is a frozen deposit and does not end earlier than 10 days after the amount is no longer a frozen deposit.

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 or qualified employer plan. Subsequent distributions of those proceeds, however, do not qualify for the 10-year tax option or capital gain treatment.

If an annuity contract was distributed to you by a qualified retirement plan, you can roll over an amount paid under the contract that is otherwise an eligible rollover distribution. For example, you can roll over a single sum payment you receive upon surrender of the contract to the extent it is taxable and is not a required minimum distribution.

To roll over an eligible rollover distribution of property, you must either roll over the actual property distributed or sell it and roll over the proceeds. You cannot keep the distributed property and roll over cash or other property.

If you sell the distributed property and roll over all the proceeds, no gain or loss is recognized on the sale. The sale proceeds (including any portion representing an increase in value) are treated as part of the distribution and are not included in your gross income.

If you roll over only part of the proceeds, you are taxed on the part you keep. You must allocate the proceeds you keep between the part representing ordinary income from the distribution (its value upon distribution) and the part representing gain or loss from the sale (its change in value from its distribution to its sale).

On September 4, 2011, Paul received an eligible rollover distribution from his employer's noncontributory qualified employee plan of $50,000 in nonemployer stock. On September 24, 2011, he sold the stock for $60,000. On October 3, 2011, he contributed $60,000 cash to a traditional IRA. Paul does not include either the $50,000 eligible rollover distribution or the $10,000 gain from the sale of the stock in his income. The entire $60,000 rolled over will be ordinary income when he withdraws it from his IRA.

The facts are the same as in Example 1, except that Paul sold the stock for $40,000 and contributed $40,000 to the IRA. Paul does not include the $50,000 eligible rollover distribution in his income and does not deduct the $10,000 loss from the sale of the stock. The $40,000 rolled over will be ordinary income when he withdraws it from his IRA.

The facts are the same as in Example 1, except that Paul rolled over only $45,000 of the $60,000 proceeds from the sale of the stock. The $15,000 proceeds he did not roll over includes part of the gain from the stock sale. Paul reports $2,500 ($10,000 ÷ $60,000 × $15,000) as capital gain and $12,500 ($50,000 ÷ $60,000 × $15,000) as ordinary income.

The facts are the same as in Example 2, except that Paul rolled over only $25,000 of the $40,000 proceeds from the sale of the stock. The $15,000 proceeds he did not roll over includes part of the loss from the stock sale. Paul reports $3,750 ($10,000 ÷ $40,000 × $15,000) capital loss and $18,750 ($50,000 ÷ $40,000 × $15,000) ordinary income.

If both cash and property were distributed and you did not roll over the entire distribution, you may designate what part of the rollover is allocable to the cash distribution and what part is allocable to the proceeds from the sale of the distributed property. If the distribution included an amount that is not taxable (other than the net unrealized appreciation in employer securities) as well as an eligible rollover distribution, you may also designate what part of the nontaxable amount is allocable to the cash distribution and what part is allocable to the property. Your designation must be made by the due date for filing your tax return, including extensions. You cannot change your designation after that date. If you do not make a designation on time, the rollover amount or the nontaxable amount must be allocated on a ratable basis.

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. (See Qualified domestic relations order (QDRO) under General Information, earlier.) 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 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 the 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.

Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. This amount should be shown in box 1 of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Enter the remaining amount, even if zero, on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Also, write "Rollover" next to the line.

The administrator of a qualified retirement plan must, within a reasonable period of time before making an eligible rollover distribution, provide you with a written explanation. It must tell you about all of the following.

• Your right to have the distribution paid tax free directly to another qualified retirement plan or to a traditional or Roth IRA.
• The requirement to withhold tax from the distribution if it is not directly rolled over.
• The nontaxability of any part of the distribution that you roll over within 60 days after you receive the distribution.
• Other qualified retirement plan rules that apply, including those for lump-sum distributions, alternate payees, and cash or deferred arrangements.
• How the distribution rules of the plan to which you roll over the distribution may differ from the rules that apply to the plan making the distribution in their restrictions and tax consequences.

The plan administrator must provide you with a written explanation no earlier than 90 days and no later than 30 days before the distribution is made. However, you can choose to have a distribution made less than 30 days after the explanation is provided as long as the following two requirements are met.

• You must have the opportunity to consider whether or not you want to make a direct rollover for at least 30 days after the explanation is provided.
• The information you receive must clearly state that you have the right to have 30 days to make a decision.

Contact the plan administrator if you have any questions regarding this information.

You can roll over an eligible rollover distribution from a designated Roth account 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 (see Direct rollover option, earlier) or you can roll over the entire amount (or any portion) to a Roth IRA. Also, if you are a plan participant in a 401(k), 403(b), or 457(b) plan, your plan may permit you to roll over amounts in those plans to a designated Roth account within the same plan (in-plan Roth rollover). The rollover of any untaxed amounts are included in income. See In-plan Roth rollovers below.

A qualified distribution from a designated Roth account is not includible in income. (A qualified distribution is defined earlier in the discussion of designated Roth accounts under Taxation of Periodic Payments). Generally, you cannot have a qualified distribution within the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. If a direct rollover is made from a designated Roth account under another plan, the 5-tax-year period of participation begins on the first day of your tax year for which you first had designated Roth contributions made to the account either making the distribution or receiving the distribution, whichever was earlier.

If you roll over only part of an eligible rollover distribution that is not a qualified distribution and not paid as a direct rollover contribution, the part rolled over is considered to be first from the income portion of the distribution.

You receive an eligible rollover distribution that is not a qualified distribution from your designated Roth account. The distribution consists of $11,000 (investment) and $3,000 (income earned). Within 60 days of receipt, you roll over $7,000 into a Roth IRA. The $7,000 consists of $3,000 of income and $4,000 of investment. Since you rolled over the part of the distribution that could be included in gross income (income earned), none of the distribution is included in gross income.

If you are a participant in a 401(k), 403(b), or 457(b) plan, you may be able to roll over amounts from those plans to a designated Roth account within the same plan. Any untaxed amounts included in the in-plan Roth rollover must be included in income. The amount included in income is included in income in the year you receive the distribution. For 2010 in-plan Roth rollovers, the amount to be included in income is included in income in equal amounts in 2011 and 2012 unless you elected to include the entire amount in income in 2010. You may be required to include an amount other than half of a 2010 in-plan Roth rollover in income in 2011 if you also took a distribution from your designated Roth account in 2010 or 2011. See How to treat 2010 in-plan Roth rollovers, later.

To qualify, an in-plan Roth rollover must satisfy the rules for distributions and be an eligible rollover distribution (defined earlier under Eligible rollover distribution). If your plan permits in-plan Roth rollovers, you can roll over any vested amount in your 401(k), 403(b), or 457(b) plan.

You can make the in-plan Roth rollover by direct transfer of the amount from the non-Roth account to your designated Roth account within the same plan. The 20% mandatory withholding does not apply to in-plan Roth rollovers made by direct rollover. You can also effect the in-plan Roth rollover by receiving an eligible rollover distribution from your 401(k), 403(b), or 457(b) plan and within 60 days deposit it into a designated Roth account in the same plan.

Your plan must provide a written explanation of the consequences of making an in-plan Roth rollover. In-plan Roth rollovers cannot be undone. Unlike rollovers to Roth IRAs, you cannot later recharacterize an in-plan Roth rollover.

Enter the total amount of the distribution before income tax or deductions were withheld on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. This amount should be shown in box 1 of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Enter the remaining amount, even if zero, on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

If you made an in-plan Roth rollover in 2010, any amount you have to include in income as a result of the rollover is generally included in income in equal amounts in 2011 and 2012. If you also took a distribution from your designated Roth account in 2010 or 2011, see Distributions from designated Roth accounts, later, to figure the taxable amount for 2011. Otherwise, include on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, the amount from your 2010 Form 8606, line 25a.

A change in filing status or a divorce does not affect the application of the 2-year income spread rule for 2010 rollovers.

If you include the taxable part of a 2010 rollover in equal amounts over the 2-year period (2011 and 2012) and in 2010 or 2011 any amount allocable to the taxable amount of the in-plan Roth rollover is distributed from the designated Roth account, you generally have to include in income for 2011 the ratable (one-half) portion for the year and the part of the distribution that is allocable to the 2012 taxable part of the in-plan Roth rollover.

Any amount allocable to the in-plan Roth rollover that is included in income in 2010 or 2011 because of a distribution from the designated Roth account first reduces the taxable amount that is reportable in income in 2012. The taxable amount that is reportable in income in 2011 is reduced next. The most that can be included in income because of a distribution of an in-plan Roth rollover amount for any one year is the total amount required to be included in income for 2011 and 2012 minus the amounts included in income in all preceding years in the period.

If you received a distribution from your designated Roth account in 2011 allocable to an in-plan Roth rollover, you must complete Form 8606 to figure the taxable amount of the distribution allocable to the 2010 in-plan Roth rollover. If you received a distribution from your designated Roth account in 2010 allocable to an in-plan Roth rollover, but not in 2011, see the example below to figure the amount to enter on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

On December 1, 2010, you made an in-plan Roth rollover to a new designated Roth account from your 401(k) plan. On December 20, 2010, you took a distribution of $12,000 from your designated Roth account. You spread the taxable amount over 2011 and 2012 and entered $10,000 on lines 25a and 25b of your 2010 Form 8606. The $20,000 in-plan Roth rollover was the only amount put into your designated Roth account in 2010. You completed the Designated Roth Account Income Acceleration Worksheet in the 2010 Instructions for Form 8606, and on line 3 of this worksheet, the entire $12,000 distribution was allocable to the in-plan Roth rollover and taxable for 2010. Since you already included $12,000 (line 16b of your 2010 Form 1040) of the $20,000 in-plan Roth rollover in income in 2010, only $8,000 remains to be taxed in 2011 and 2012. For 2011, you must include the smaller of the amount on line 25a of your 2010 Form 8606 or the amount that remains to be taxed due to the 2010 in-plan Roth rollover. In this case, you include the $8,000 on your 2011 Form 1040, line 16b. You will not have any amount to report in 2012 due to your 2010 in-plan Roth rollover because you have already reported the entire taxable amount of your 2010 in-plan Roth rollover ($20,000) in your income for 2010 and 2011 ($12,000 in 2010 and $8,000 in 2011).

If the owner of the designated Roth account who is including amounts in income ratably over 2011 and 2012 dies before including all of the amounts in income, any amounts not included must generally be included in the owner’s gross income for the year of death. However, if the owner’s surviving spouse receives the entire interest in the owner’s designated Roth account, that spouse can continue to ratably include the amounts in income in 2011 and 2012. The election cannot be made or changed after the due date (including extensions) for the surviving spouse’s tax return that includes the date of the owner’s death. Any amount includible in the decedent’s (owner’s) gross income for the year of death under this rule must be reported on the decedent’s final income tax return.

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. However, special rules apply for any amounts rolled over in 2010. See How to treat 2010 Roth IRA rollovers, later. 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.

Any amount rolled over into a Roth IRA is subject to the same rules for converting a traditional IRA into a Roth IRA. For more information, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1 of Publication 590.

Enter the total amount of the distribution before income tax or deductions were withheld on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. This amount should be shown in box 1 of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Enter the remaining amount, even if zero, on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

If you rolled over amounts from a qualified employer plan in 2010 to a Roth IRA, any amount you have to include in income as a result of the rollover is generally included in income in equal amounts in 2011 and 2012. If you also took a distribution from your Roth IRA in 2010 or 2011, see Distributions from Roth IRAs, later, to figure the taxable amount for 2011. Otherwise, include on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, the amount from your 2010 Form 8606, line 25a.

A change in filing status or a divorce does not affect the application of the 2-year income spread rule for 2010 rollovers.

If you include the taxable part of a 2010 rollover in equal amounts over the 2-year period (2011 and 2012) and in 2010 or 2011 any amount allocable to the taxable amount of the rollover is distributed from the Roth IRA, you generally have to include in income for 2011 the ratable (one-half) portion for the year and the part of the distribution that is allocable to the 2012 taxable part of the rollover.

Any amount allocable to the rollover that is included in income in 2010 or 2011 because of a distribution from the Roth IRA first reduces the taxable amount that is reportable in income in 2012. The taxable amount that is reportable in income in 2011 is reduced next. The most that can be included in income because of a distribution of a rollover amount for any one year is the total amount required to be included in income for 2011 and 2012 minus the amounts included in income in all preceding years in the period.

If you received a distribution from your Roth IRA in 2011, you must complete Form 8606 to figure the taxable part of the distribution and any taxable amount allocable to the 2010 rollover.

If you received a distribution from your Roth IRA in 2010, but not in 2011, see the example below to figure the amount to enter on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

In January 2010 you rolled over $20,000 to a new Roth IRA from your 401(k) plan. In December 2010 you took a distribution of $12,000 from your Roth IRA. You completed Part III of Form 8606 for 2010 showing a $20,000 taxable rollover on line 23. You spread the taxable amount over 2011 and 2012 and entered $10,000 on lines 25a and 25b of your 2010 Form 8606. The $20,000 rollover was the only amount put into your Roth IRA, so the entire $12,000 distribution was allocable to the taxable part of the rollover shown on your 2010 Form 8606, line 33. You did not have any transactions involving your Roth IRA for 2011. Since you already included $12,000 (line 15b of your 2010 Form 1040) of the $20,000 in income in 2010, only $8,000 remains to be taxed in 2011 and 2012. For 2011, you must include the smaller of the amount on line 25a of your 2010 Form 8606 or the amount that remains to be taxed due to the 2010 rollover. In this case, you include the $8,000 on your 2011 Form 1040, line 16b. You will not have any amount to report in 2012 due to your 2010 rollover because you have already reported the entire taxable amount of your 2010 rollover ($20,000) in your income for 2010 and 2011 ($12,000 in 2010 and $8,000 in 2011).

If a Roth IRA owner who is including amounts in income ratably over 2011 and 2012 dies before including all of the amounts in income, any amounts not included must generally be included in the owner’s gross income for the year of death. However, if the owner’s surviving spouse receives the entire interest in all the owner’s Roth IRAs, that spouse can continue to ratably include the amounts in income in 2011 and 2012. The election cannot be made or changed after the due date (including extensions) for the surviving spouse’s tax return that includes the date of the owner’s death. Any amount includible in the decedent’s (owner’s) gross income for the year of death under this rule must be reported on the decedent’s final income tax return.

Table 1 may help you decide which distribution option to choose. Carefully compare the effects of each option.

Affected item	Result of a payment to you	Result of a direct rollover
Withholding	The payer must withhold 20% of the taxable part.	There is no withholding.
Additional tax	If you are under age 591/2, a 10% additional tax may apply to the taxable part (including an amount equal to the tax withheld) that is not rolled over.	There is no 10% additional tax. See Tax on Early Distributions, later.
When to report as income	Any taxable part (including the taxable part of any amount withheld) not rolled over is income to you in the year paid.	Any taxable part is not income to you until later distributed to you from the new plan or IRA. However, see Rollovers to Roth IRAs, earlier, for an exception.

If you are a qualified taxpayer and you received qualified settlement income in connection with the Exxon Valdez litigation, you can contribute all or part of it to an eligible retirement plan. This includes a qualified retirement plan. The amount contributed cannot exceed $100,000 (reduced by the amount of qualified settlement income contributed to an eligible retirement plan in prior tax years) or the amount of qualified settlement income received during the tax year. Contributions for the year can be made until the due date for filing your tax return, not including extensions.

Qualified settlement income that you contribute to a qualified retirement plan will be treated as having been rolled over in a direct trustee-to-trustee transfer within 60 days of the distribution. The amount contributed is not included in your taxable income and it is not considered to be investment in the contract.

You are a qualified taxpayer if you are:

• A plaintiff in the civil action In re Exxon Valdez, No. 89-095-CV (HRH) (Consolidated) (D.Alaska), or
• The beneficiary of the estate of a plaintiff who acquired the right to receive qualified settlement income from that plaintiff and who is the spouse or immediate relative of that plaintiff.

Qualified settlement income is any interest or punitive damage awards which are:

• Otherwise includible in income, and
• Received in connection with the Exxon Valdez civil action described (whether pre- or post-judgment and whether related to a settlement or a judgment).

Qualified settlement income can be received as periodic payments or as a lump-sum. See Publication 525, Taxable and Nontaxable Income, for information on how to report Exxon Valdez settlement income.

Qualified settlement income that is contributed to a Roth IRA or a designated Roth account will be:

• Included in your taxable income for the year the qualified settlement income was received, and
• Treated as part of your cost basis (investment in the contract) that is not taxable when distributed.