Timing restrictions do not apply to distributions of rollover contributions.

• Author: O'Driscoll, David

Under a recent ruling, eligible retirement plans can distribute an individual's rollover contributions, at any time, pursuant to his or her request, if the plan separately accounts for such contributions.

Background

The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Job Creation and Worker Assistance Act of 2002 substantially increased the rollover opportunities available to individuals, by expanding the types of plans eligible to accept rollovers and funds that can be rolled over. The following provisions contain rules applicable to rollovers (including the new portability rules):

* Sec. 402(c): An eligible rollover distribution from a qualified trust that is rolled over to an eligible retirement plan is not includible in gross income for the tax year paid. Similar rules apply to Sec. 403(a) annuity plans, Sec. 403(b) tax-sheltered annuities, Sec. 457 eligible governmental plans and IRAs.

* Sec. 402(c)(2):The portion of an eligible rollover distribution not otherwise includible in gross income cannot be rolled over; unless such previously taxed amounts are transferred to an IRA or a qualified defined contribution plan that agrees to separately account for such amounts in a direct trustee-to-trustee transfer.

* Sec 401(a)(31): A qualified trust must provide for a direct trustee-to-trustee transfer (a direct rollover) of eligible rollover distributions. For previously taxed amounts, the limits described in the preceding paragraph apply. Similar rules apply to Secs. 403(a) annuity plans, 403(b) tax-sheltered annuities and 457 eligible governmental plans.

* Sec. 408(d)(3)(A): IRA distributions of previously taxed amounts may be rolled over only to another IRA.

* Sec. 402(c)(I0): A Sec. 457 eligible governmental plan may not accept a rollover from another type of eligible retirement plan, unless it separately accounts for such rollover. A distribution from such separate account is subject to the Sec. 72(t) 10% additional tax, as if the distribution were from a Sec. 401(a) plan; see Sec. 72(t)(9).

* Sec. 402(f):A recipient of an eligible rollover distribution must be apprised of the fact that, if the distribution is rolled over to an eligible retirement plan, distributions from that plan may be subject to restrictions and tax consequences that differ from those applicable to distributions from the plan making the eligible rollover distribution; see Sec. 402(f)(1)(E).

Distribution of Rollover Contributions

In many cases, the...