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Take Your Retirement Plan Lumps First

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in Small Business Tax

Q.  I am 75-years-old. Can I benefit from income averaging if I roll over my pension plan funds to an IRA?

A.  Not exactly. The 10-year income-averaging break is available for a lump-sum distribution from a qualified retirement plan if you were born before 1936. The IRS taxes the distribution as if it had been spread over 10 years, effectively reducing the overall tax. In addition, you may qualify for a capital gains treatment for amounts attributable to pre-1974 plan participation. Alternatively, you can defer tax completely through an IRA rollover.

Tip: Once you roll over the retirement plan assets to an IRA, you no longer can take advantage of income averaging or capital gains treatment, no matter what your age.

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