Monday, September 13, 2010

US Non Qualified Pension Claim- Tax Impact

I received this important information from a colleague. If we do get paid anything on our claims, even if it is titled on a 1099-R form to the IRS, the cheque must be made out to the tax deferred trust fund that we plan to use, such as an IRA. So there is more that would need to be done to convince the court to pay out any claims according to this categorization.

Here's the information I received:

Typically if one plans on rolling over a "-R" type distribution tax free (e.g., 509, 403, 401K) then the distribution MUST NOT pass thru the employee's hands unencumbered. The distribution must be:

Sent directly to the fund, wire transfer

If its a paper transaction, must be made out to the fund or to the fund jointly with the employee, with a fixed time period for deposit into the destination fund.

The IRS and our tax courts have historically interpreted "sole possession", i.e., check in the employees name only, as the employee has had "use" of the proceeds and therefore it isn't a true rollover.

The tax laws may have been modified over the last several years, so if we manage to get something out of this deal, U.S. citizens best check with an accountant or tax lawyer before the distribution occurs. Remember, any advice, interpretations, suggestion, or answers obtained verbally - and in some cases in writing - from the IRS do not necessarily hold up in a tax court.

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