After-tax portions of a distribution must first be allocated to amounts not rolled over, then to 60-day rollovers and only after that to direct rollovers
To make this selection, the recipient must inform the plan administrator before the direct rollovers
Problems with direct rollovers
of participant distribution
The defined benefit plan allows the employee to begin receiving benefits as soon as employment is terminated, and accepts direct rollovers
only if the employee has begun to receive benefits.
avoid the 20 percent mandatory withholding.
A plan administrator may permit a participant to divide his distribution into separate distributions to be paid to two or more eligible retirement plans in direct rollovers
but is not required to do so.
Beginning in 2008, direct rollovers
(conversions) to Roth IRAs
Withholding not required in direct rollover
: Direct rollovers
to Roth IRAs, like other direct rollovers
, are not subject to the 20% mandatory tax withholding requirements, even though the rollover results in taxable income to the distributee.
The rules are different for 60-day rollovers and for direct rollovers
, and they are more favorable for direct rollovers
During 2006 and 2007, the provision allows donors age 701/2 and older to make direct rollovers
to a qualified charity of up to $100,000 without affecting the donor's taxable income.
If a plan does offer direct rollovers
to nonspouse beneficiaries of some, but not all, participants, such rollovers must be offered on a nondiscriminatory basis.
The Service has supplemented the instructions to Form 1099-R for reporting direct rollovers
from qualified plans or tax-sheltered annuities.