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US Government Issues Guidance On Pension Distributions

by Leroy Baker, Tax-News.com, New York

18 January 2007


The United States Treasury Department and the Internal Revenue Service have issued a notice providing extensive guidance on several Pension Protection Act rules relating to distributions from tax-qualified retirement plans.

The guidance addresses many questions on PPA provisions, including:

  • Interest rate assumptions for lump sum distributions;
  • Hardship distributions from a 401(k) and similar plans;
  • Early distributions from qualified plans to terminated public safety employees;
  • Rollovers from qualified plans to IRAs for non-spouse beneficiaries;
  • Distributions to pay for health insurance for retired public safety officers;
  • Earlier vesting of certain employer contributions; and
  • New rules for the notice and consent period for distributions.

The notice also clarifies several issues concerning the provision permitting IRA owners aged seventy-and-a-half or older to directly transfer tax-free up to $100,000 per year to an eligible charity. For example, a check from an IRA made payable to an eligible charity but delivered by the IRA holder still qualifies for tax-free treatment. IRAs held on behalf of beneficiaries, as well as IRAs held by the original owners, are eligible to use this provision.

Additionally, the $100,000 annual limit applies separately for each spouse in a married couple. If both spouses have IRAs and are at least age seventy-and-a-half, the couple can transfer a combined total of $200,000.


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