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What's a Lump-Sum Distribution?

A lump-sum distribution is the distribution or payment within a single tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans). Additionally, a lump-sum distribution is a distribution that's paid:

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• Because of the plan participant's death,
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• After the participant reaches age 59\\xbd,
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• Because the participant, if an employee, separates from service, or
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• After the participant, if a self-employed individual, becomes totally and permanently disabled.
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Lump-Sum Treatment Options

You can elect to treat the portion of a lump-sum distribution that's attributable to your active participation in the plan using one of five options:

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1. Report the taxable part of the distribution from participation before 1974 as a capital gain (if you qualify) and the taxable part of the distribution from participation after 1973 as ordinary income.
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2. Report the taxable part of the distribution from participation before 1974 as a capital gain (if you qualify) and use the 10-year tax option to figure the tax on the part from participation after 1973 (if you qualify).
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3. Use the 10-year tax option to figure the tax on the total taxable amount (if you qualify).
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4. Roll over all or part of the distribution. No tax is currently due on the part rolled over. Report any part not rolled over as ordinary income.
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5. Report the entire taxable part as ordinary income.
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