When an individual retires or leaves an employer’s service, the individual will be required to take a distribution from the employer’s retirement plan (if the employer had a plan). Depending on the employee’s age and the plan’s terms, a distribution may not be required immediately, but when it’s time to take the distribution there are a number of tax pitfalls that can create some very big tax headaches for the employee. This article will explore those hazards and discuss how to avoid them.

First and foremost, if the employee does not transfer or roll the distribution over into another employer’s qualified plan or an IRA, the entire taxable amount of the distribution will be included in the employee’s taxed income for the year of the distribution. In addition, if the employee is under 59-1/2 years of age at the time of the distribution, the employee Read More

Although this subject has been brought up before-and, yes, we are harping on the subject because of the profound tax consequences – this is a reminder that, beginning this year, individuals are only allowed one IRA rollover in any 12-month period (this includes SEP and Simple accounts, traditional and Roth IRAs). That is, 12 months must have elapsed from the date a rollover is completed before another rollover can be made. Failure to abide by this rule can be expensive. And the rule applies no matter how many IRAs an individual owns.

Example – Joe makes an IRA rollover on March 1, 2015. He cannot roll over another IRA distribution, without penalties, until March 2, 2016. Read More

If you have an IRA beware of this new rule that limits the number of IRA Rollovers that are not “trustee to trustee” to one per year.

When you receive a distribution from a traditional IRA or your employer’s plan, you would normally report it as income unless you rollover that distribution to another IRA no later than 60 days after the day you receive the distribution from your traditional IRA or your employer’s plan. In the absence of a waiver or an extension, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer’s plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions as discussed later under Early Distributions. Read More