3970 / How is an employee taxed on postretirement distributions from a qualified plan?

The tax treatment of distributions received at or after retirement depends on the time and manner of distribution.

If a distribution is rolled over to an IRA or other eligible retirement plan, taxation of the amounts rolled over is deferred until it is distributed in the future ( Q 3996).

If a lump sum distribution is made, it is subject to the treatment explained in Q 3971 and, in the case of net unrealized appreciation on employer securities, as explained in Q 3972.

If an employee receives annuity payments, the benefits are taxed as explained in Q 613 and Q 618. The employee’s cost basis, if any, is determined under the rules set forth in Q 3973.

If a distribution is received prior to age 59½, it may trigger the 10 percent penalty on early or premature distributions unless one of the exceptions applies ( Q 3969).