Eligible rollover distributions.

• Author: Daum, Timothy A.

The Unemployment Compensation Amendments of 1992 added Sec. 401(a)(31) to the Internal Revenue Code. This provision contains direct roll-over rules with which all qualified retirement plans must comply. The violation of some of these rules can potentially lead to a plan's disqualification and its loss of favorable tax status. These rules require plans to provide participants with a direct roll-over option for all eligible roll-over distributions, and require that plan administrators withhold 20% of any eligible roll-over distribution, to the extent it is not directly rolled over to an individual retirement account or another qualified retirement plan.

An eligible roll-over distribution is any distribution from a qualified retirement plan to the extent it is includible in the income of the participant (or the participant's spouse or former spouse), except for die following: * Minimum distributions required to begin at age 70 1/2 under Sec. 401(a)(9). * Substantially equal periodic payments made over die participants life for joint lives) or life expectancy (or joint life expectancy). * Substantially equal periodic payments made over a period of at least 10 years. * Corrective distributions of excess deferrals (Sec. 401(k) contributions in excess of $9,500, excess contributions (Sec. 401(k) contributions returned because of a failed Sec. 401(k) anti-discrimination test), excess aggregate contributions (matching contributions returned because of a failed Sec. 401(m) anti-discrimination test) and excess annual additions (contributions in excess of an individual's annual additions limit under Sec. 415). * Loans treated as deemed distributions or distributions of a loan offset amount. * Dividends paid on employer stock in accordance with Sec. 404(k). * P.S. B costs (cost of term life insurance coverage). * Distributions of less than $200 in one year.

Sec. 402(f) requires that the plan administrator provide a participant with a written explanation of certain rules regarding an eligible roll-over distribution, this written explanation is generally required to be distributed between 30 and 90 days prior to the distribution of funds. Notice 92-48 contains a model Sec. 402(f) notice; a plan administrator will be deemed to comply with...