Special Tax Notice

SPECIAL TAX NOTICE REGARDING NON-PERIODIC PBGC PAYMENTS
YOUR ROLLOVER OPTIONS

You are receiving this notice because all or part of the payment you are due from the Pension Benefit Guaranty
Corporation (PBGC) is eligible to be rolled over to an individual retirement arrangement (IRA) or a qualified
employer plan. This notice is intended to help you decide whether to do such a rollover.
This notice describes the rollover rules that apply to non-periodic payments, such as a payment of your benefit in a
single sum or a withdrawal of employee contributions, from PBGC.
Payments from PBGC are from retirement plans that have terminated and are now administered by PBGC, a
federal government agency. The tax rules and rollover options that apply to payments from qualified retirement
plans generally apply to payments from PBGC. The rules that apply to most payments from PBGC are described
in the General Information About Rollovers section. Special rules that only apply in certain circumstances are
described in the Special Rules and Options section.
GENERAL INFORMATION ABOUT ROLLOVERS
How can a rollover affect my taxes?
You will be taxed on the taxable amount of the payment from PBGC if you do not roll it over into an IRA or another
qualified employer plan. If you are under age 591/2 and do not roll it over, you will also have to pay a 10%
additional income tax on early distributions (generally, pay a 10% additional income tax on distributions made
before age 59 ½), unless an exception applies. However, if you do a rollover, you will not have to pay tax until you
receive payments later and the 10% additional income tax will not apply if those payments are made after you are
age 591/2 (or if an exception applies). Note that other rules apply to a rollover to a Roth IRA that are described later
in this notice.

What types of retirement accounts and plans may accept my rollover?
You may roll over the payment to either an IRA (an individual retirement account or individual retirement annuity,
including a Roth IRA) or an employer plan (a tax-qualified plan, section 403(b) plan, or governmental section
457(b) plan) that will accept the rollover. The rules of the IRA or employer plan that holds the rollover will
determine your investment options, fees, and rights to payment from the IRA or employer plan (for example, no
spousal consent rules apply to IRAs and IRAs may not provide loans). Further, the amount rolled over will become
subject to the tax rules that apply to the IRA or employer plan.
How can I do a rollover?
There are two ways to do a rollover. You can do either a direct rollover or a 60-day rollover.
Direct rollover option. You can choose to have all or part of an eligible rollover distribution paid directly to an
IRA or to an employer plan that accepts rollover payments. PBGC will not withhold tax from any part of your
payment that is directly paid to the trustee of the IRA or employer plan. If any part of the payment is paid directly
to you, PBGC will withhold 20% of it for income tax.
You should contact the IRA sponsor or the administrator of the employer plan for information on how to do a direct
rollover.
60-day rollover option. If you do not do a direct rollover, PBGC must withhold 20% of the taxable amount of the
payment for federal income tax. The full amount of the payment is treated as paid to you even though you actually
receive only 80% of the payment.
However, you may still do a rollover by making a deposit into an IRA or eligible employer plan that will accept it.
Generally, you will have 60 days after you receive the payment to make the deposit. In order to roll over the entire
payment in a 60-day rollover, you must use other funds to make up for the 20% that is withheld. If you do not roll
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SPECIAL TAX NOTICE REGARDING NON-PERIODIC PBGC PAYMENTS
over the entire amount of the payment, the taxable portion not rolled over will be taxed and will be subject to the
10% additional income tax on early distributions if you are under age 591/2 (unless an exception applies).
How much may I roll over?
You may roll over all or part of the amount eligible for rollover. However, PBGC will honor a rollover election only if
the total payment, including interest, will be rolled over or the part of a payment to be rolled over is $500 or more.
Payments from PBGC are eligible for rollover, except for:
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Certain payments spread over a period of at least 10 years or over your life or life expectancy (or the lives
or joint life expectancy of you and your beneficiary);
Required minimum distributions after age 701/2 (or after death); and.
Loans treated as deemed distributions (for example, loans in default due to missed payments before your
employment ends).

If I don’t do a rollover, will I have to pay the 10% additional income tax on early distributions?
If you are under age 591/2, you will have to pay the 10% additional income tax on early distributions for any
payment from PBGC (including amounts withheld for income tax) that you do not roll over, unless one of the
exceptions listed below applies. This tax applies to the part of the distribution that you must include in income
and is in addition to the regular income tax on the payment not rolled over. However, PBGC does not
withhold this additional tax. The 10% additional income tax does not apply to payments from PBGC that are
made:
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•
•
•
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•
•

as part of a series of substantially equal periodic payments (made at least annually) for your life (or life
expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (the
payment must begin after separation from service);
because you are totally and permanently disabled;
on or after the death of the plan participant;
after your separation from service if you will be at least 55 in the year of separation;
to an alternate payee under a qualified domestic relations order (‘QDRO’);
to the extent you have deductible medical expenses;
directly to the government to satisfy a federal tax levy;
Certain payments made while you are on active duty if you were a member of a reserve component called
to duty after September 11, 2001 for more than 179 days; and
Payments for certain distributions relating to certain federally declared disasters.

If I do a rollover to an IRA, will the 10% additional income tax apply to early distributions from the IRA?
If you receive a payment from an IRA when you are under age 59½, you will have to pay the 10% additional
income tax on early distributions on the part of the distribution that you must include in income, unless an
exception applies.. In general, the exceptions to the 10% additional income tax for early distributions from an
IRA are the same as the exceptions listed above for early distributions from a plan. However, there are a few
differences for payments from an IRA, including:
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•

There is no exception for payments after separation from service that are made after age 55.
The exception for QDROs does not apply (although a special rule applies under which, as part of a divorce
or separation agreement, a tax-free transfer may be made directly to an IRA of a spouse or former
spouse).
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SPECIAL TAX NOTICE REGARDING NON-PERIODIC PBGC PAYMENTS
•

The exception for payments made at least annually in equal or close to equal amounts over a specified
period applies without regard to whether you have had a separation from service.

There are additional exceptions for (1) payments for qualified higher education expenses, (2) payments up to
$10,000 used in a qualified first-time home purchase, and (3) payments for health insurance premiums after you
have received unemployment compensation for 12 consecutive weeks (or would have been eligible to receive
unemployment compensation but for self-employed status).
Will I owe State income taxes?
This notice does not describe any State or local income tax rules (including withholding rules).
SPECIAL RULES AND OPTIONS
If your payment includes after-tax contributions
After-tax contributions included in a payment are not taxed. If a payment is only part of your benefit, an allocable
portion of your after-tax contributions is generally included in the payment, so you cannot take a payment of only
after-tax contributions. However, if you have pre-1987 after-tax contributions maintained in a separate account, a
special rule may apply to determine whether the after-tax contributions are included in a payment. In addition,
special rules apply when you do a rollover, as described below.
You may roll over to an IRA a payment that includes after-tax contributions through either a direct rollover or a
60- day rollover. You must keep track of the aggregate amount of the after-tax contributions in all of your IRAs
(in order to determine your taxable income for later payments from the IRAs). If you do a direct rollover of only a
portion of the amount paid by PBGC and at the same time the rest is paid to you, the portion directly rolled over
consists first of the amount that would be taxable if not rolled over. For example, assume you are
receiving a distribution of $12,000, of which $2,000 is after-tax contributions. In this case, if you directly roll over
$10,000 to an IRA that is not a Roth IRA, no amount is taxable because the $2,000 amount not directly rolled
over is treated as being after-tax contributions. If you do a direct rollover of the entire amount paid from PBGC
to two or more destinations at the same time, you can choose which destination receives the after-tax
contributions.
If you do a 60-day rollover to an IRA of only a part of the payment made to you, the after-tax contributions are
treated as rolled over last. For example, assume you are receiving a complete distribution of your benefit which
totals $12,000, of which $2,000 is after-tax contributions, and no part of the distributions is directly rolled over. In
this case, if you roll over $10,000 to an IRA that is not a Roth IRA in a 60-day rollover; no amount is taxable
because the $2,000 amount not rolled over is treated as being after-tax contributions.
You may roll over to an employer plan all of a payment that includes after-tax contributions, but only through a
direct rollover (and only if the receiving plan separately accounts for after-tax contributions and is not a
governmental section 457(b) plan). You can do a 60-day rollover to an employer plan of part of a payment that
includes after-tax contributions, but only up to the amount of the payment that would be taxable if not rolled over.

If you miss the 60-day rollover deadline
Generally, the 60-day rollover deadline cannot be extended. However, the IRS has the limited authority to waive the
deadline under certain extraordinary circumstances, such as when external events prevented you from completing
the rollover by the 60-day rollover deadline. Under certain circumstances, you may claim eligibility for a waiver of the
60-day rollover deadline by making a written self-certification. Otherwise, to apply for a waiver from the IRS, you
must file a private letter ruling request with the IRS. Private letter ruling requests require the payment of a
nonrefundable user fee. For more information, see IRS Publication 590-A, Contributions to Individual Retirement
Arrangements (IRAs).

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SPECIAL TAX NOTICE REGARDING NON-PERIODIC PBGC PAYMENTS
If you have an outstanding loan that is being offset
If you have an outstanding loan from the Plan, your Plan benefit may be offset by the outstanding amount of the
loan, typically when your employment ends. The offset amount is treated as a distribution to you at the time of
the offset. Generally, you may roll over all or any portion of the offset amount. Any offset amount that is not
rolled over will be taxed (including the 10% additional income tax on early distributions, unless an exception
applies). You may roll over offset amounts to an IRA or an employer plan (if the terms of the employer plan
permit the plan to receive plan loan offset rollovers).

How long you have to complete the rollover depends on what kind of plan loan offset you have. If you have a
qualified plan loan offset, you will have until your tax return due date (including extensions) for the tax year
during which the offset occurs to complete your rollover. A qualified plan loan offset occurs when a plan loan
in good standing is offset because your employer plan terminates, or because you sever from employment. If
your plan loan offset occurs for any other reason, then you have 60 days from the date the offset occurs to
complete your rollover.
If you were born on or before January 1, 1936
If you were born on or before January 1, 1936 and receive a lump sum distribution that you do not roll over,
special rules for calculating the amount of the tax on the payment might apply to you. For more information, see
IRS Publication 575, Pension and Annuity Income.
If you roll over your payment to a Roth IRA
If you roll over the payment to a Roth IRA, a special rule applies under which the amount of the payment rolled
over (reduced by any after-tax amounts) will be taxed. However, the 10% additional income tax on early
distributions will not apply (unless you take the amount rolled over out of the Roth IRA within 5 years, counting
from January 1 of the year of the rollover).
If you roll over the payment to a Roth IRA, later payments from the Roth IRA that are qualified distributions will not
be taxed (including earnings after the rollover). A qualified distribution from a Roth IRA is a payment made after
you are age 591/2 (or after your death or disability, or as a qualified first-time homebuyer distribution of up to
$10,000) and after you have had a Roth IRA for at least 5 years. In applying this 5-year rule, you count from
January 1 of the year for which your first contribution was made to a Roth IRA. Payments from the Roth IRA that
are not qualified distributions will be taxed to the extent of earnings after the rollover, including the 10% additional
income tax on early distributions (unless an exception applies). You do not have to take required minimum
distributions from a Roth IRA during your lifetime. For more information, see IRS Publication 590-A, Individual
Retirement Arrangements (IRAs) and IRS Publication 590-B, Distributions from Individual Retirement
Arrangements (IRAs).
You cannot roll over a payment from PBGC to a designated Roth account in an employer plan.
If you are not a Plan participant
Payments after death of the participant. If you receive a distribution after the participant’s death that you do not roll
over, the distribution will generally be taxed in the same manner described elsewhere in this notice. However, the
10% additional income tax on early distributions does not apply, and the special rule described under the section
“If you were born on or before January 1, 1936” applies only if the participant was born on or before January 1,
1936.
If you are a surviving spouse. If you receive a payment from the Plan as the surviving spouse of a
deceased participant, you have the same rollover options that the participant would have had, as described
elsewhere in this notice. In addition, if you choose to do a rollover to an IRA, you may treat the IRA as your
own or as an inherited IRA.
An IRA you treat as your own is treated like any other IRA of yours, so that payments made to you before you
are age 591/2 will be subject to the 10% additional income tax on early distributions (unless an exception
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applies) and required minimum distributions from your IRA do not have to start until after you are age 701/2.
If you treat the IRA as an inherited IRA, payments from the IRA will not be subject to the 10% additional
income tax on early distributions. However, if the participant had started taking required minimum
distributions, you will have to receive required minimum distributions from the inherited IRA. If the
participant had not started taking required minimum distributions from the Plan, you will not have to start
receiving required minimum distributions from the inherited IRA until the year the participant would have
been age 701/2.
If you are a surviving beneficiary other than a spouse. If you receive a payment from the Plan because
of the participant’s death and you are a designated beneficiary other than a surviving spouse, the only
rollover option you have is to do a direct rollover to an inherited IRA. Payments from the inherited IRA will
not be subject to the 10% additional income tax on early distributions. You will have to receive required
minimum distributions from the inherited IRA.
Payments under a qualified domestic relations order. If you are the spouse or former spouse of the participant
who receives a payment from PBGC under a qualified domestic relations order (QDRO), you generally have the
same options and the same tax treatment that the participant would have (for example, you may roll over the
payment to your own IRA or an eligible employer plan that will accept it). However, payments under the
QDRO will not be subject to the 10% additional income tax on early distributions.
If you are a nonresident alien. If you are a nonresident alien and you do not do a direct rollover to a U.S. IRA or
U.S. employer plan, instead of withholding 20%, PBGC is generally required to withhold 30% of the payment for
federal income taxes. If the amount withheld exceeds the amount of tax you owe (as may happen if you do a 60day rollover), you may request an income tax refund by filing Form 1040NR and attaching your Form 1042-S. See
Form W-8BEN for claiming that you are entitled to a reduced rate of withholding under an income tax treaty. For
more information, see also IRS Publication 519, U.S. Tax Guide for Aliens, and IRS Publication 515, Withholding
of Tax on Nonresident Aliens and Foreign Entities.
Other special rules
Series of payments for less than 10 years. If a payment is one in a series of payments for less than 10 years,
your choice whether to make a direct rollover will apply to all later payments in the series (unless you make a
different choice for later payments).
Payments of less than $200. If your payments for the year are less than $200, PBGC is not required to allow you to do a
direct rollover and is not required to withhold federal income taxes. However, you may do a direct rollover.

Recent service in the U.S. Armed Forces. You may have special rollover rights if you recently served in the US
Armed Forces. For more information, see IRS Publication 3, Armed Forces’ Tax Guide.
Payments related to recent disasters. You also may have special rollover rights if you were affected by a
federally declared disaster (or similar event), or if you received a distribution on account of a disaster. For
more information on special rollover rights related to disaster relief, see the IRS website at www.irs.gov.
FOR MORE INFORMATION
You may wish to consult a professional tax advisor. Also, you can find more detailed information on the federal tax
treatment of payments from employer plans in: IRS Publication 575, Pension and Annuity Income; IRS Publication
590-A, Individual Retirement Arrangements (IRAs); IRS Publication 590-B, Distributions from Individual Retirement
Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). These publications
are available from a local IRS office, on the web at www.irs.gov, or by calling 1-800-TAX-FORM.
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