Can you roll over a non-qualified define benefit lump sum into an IRA?

Answer 1

First off...defined benefit plans (promising a payout of an amount, generally keyed as a percentage of earnings or such) DO NOT have a lump sum. The employer has no specific account with a certain portion earmarked as a particular employees. Perhaps you mean a defined CONTRIBUTION plan? (Where a specific amount each period is contributed on behalf of the employee).

I really don't think so. Non qualified plans get very few benefits....in fact, I should think getting paid anything from the plan is going to be simply considered current income. An unqualified plan of this type is essentially just an agreement between you and your employer on some future salary payment. (You might have some options of putting it into a Roth IRA, after you pay the tax on it, but that would take some more review).

A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). To determine whether your plan is a qualified plan, check with your employer or the plan administrator.

A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it within 60 days to another eligible retirement plan. This transaction is not taxable but it is reportable on your Federal Tax Return. You can roll over most distributions except for: # The nontaxable part of a distribution, such as your after-tax contributions to a retirement plan (in certain situations after- tax contributions can be rolled over), # A distribution that is one of a series of payments based on your life expectancy or the joint life expectancy of you and your beneficiary or paid over a period of ten years or more, # A required minimum distribution, # A hardship distribution, # Dividends on employer securities, or # The cost of life insurance coverage. Further exclusions exist for certain loans and corrective distributions. Any taxable amount that is not rolled over must be included as income in the year you receive it. If a distribution is paid to you, you have 60 days from the date you receive it to roll it over. Any taxable distribution paid to you is subject to a mandatory withholding of 20%, even if you intend to roll it over later. If you do roll it over, and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your employer transfer a distribution directly to another eligible plan or to an IRA. Under this option, the 20% mandatory withholding does not apply. If you are under age 59 1/2 at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions. Certain distributions from a SIMPLE IRA will be subject to a 25% additional tax.