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lump-sum distribution |
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Lump-Sum Distribution A one time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment. Notes: A commission check or a pension plan distribution because of the pensioner's death are two examples of lump-sum distributions.
In general, distributions from qualified plans are treated as lump-sum, if the following requirements are met: The total plan balance is distributed over the same tax year. The distribution is made as a result of the employee: - attaining age 59 1/2 - being deceased (applicable to beneficiaries) - separates from service (not applicable to self-employed individuals - but applies to their common-law employees) or - being disabled (applicable only to self-employed individuals). The distribution occurs after five years of participation (this requirements is waived for beneficiaries). Lump-sum distribution A single payment that represents an employee's interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attainment of age 59-1/2, and must be made within a single tax year to avoid the federal government's 10% penalty tax.
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If such a plan offers a lump-sum distribution as an optional benefit form, the PPA '06 requires it to convert accrued benefits to lump-sum equivalents using interest rates based on the corporate bond yield curve. Likewise, she was liable if she received a lump-sum distribution from a pension plan. By law, companies are required to use the 30-year Treasury bond rate to make a variety of pension calculations, including funding requirements for future liabilities, amounts for lump-sum distributions and premium payments to the Pension Benefit Guaranty Corp. |
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