RI 37-22 Special Tax Notice Regarding Rollovers

United States
Office of Personnel Management
Retirement Operations
Washington, DC 20415-0001

Form Approved
OMB No. 3206-0212

Special Tax Notice Regarding Rollovers
The statements contained in this notice prepared by the Office of Personnel Management (OPM) are based upon a review of
Internal Revenue Service (IRS) publications, specifically Publications 575, Pension and Annuity Income, 590, Individual Retirement
Arrangements (IRAs), and 721, Tax Guide to U.S. Civil Service Retirement Benefits. However, the authority to determine income tax
liability in a particular case is vested with the IRS, not OPM. Any questions that you may have concerning tax liability in your particular
case should be addressed to the IRS.
This notice is provided to you because all or part of the payment that you will soon receive from the Office of Personnel Management
(OPM) may be eligible for rollover by you or OPM to a traditional IRA, a Roth IRA, or an eligible employer plan. A rollover is a payment
by you or OPM of all or part of your lump sum to an eligible employer plan or IRA. A rollover to a traditional IRA or an eligible employer
plan allows you to continue to postpone taxation of the lump sum until it is paid to you. You cannot postpone taxation of the taxable
portion of a lump sum payment (that is, any interest that you receive in addition to the lump sum payment of deductions and/or voluntary
contributions) if you roll it over to a Roth IRA. Your payment cannot be rolled over to a SIMPLE IRA or a Coverdell Education Savings
Account (formerly known as an education IRA). An “ eligible employer plan ” includes a plan qualified under section 401(a) of the
Internal Revenue Code, including a 401(k) plan, profit-sharing plan, defined benefit plan, stock bonus plan, and money purchase plan; a
section 403(a) annuity plan; a section 403(b) tax-sheltered annuity; and an eligible section 457(b) plan maintained by a governmental
employer (governmental 457 plan).
An eligible employer plan is not legally required to accept a rollover. Before you decide to roll over your payment to an employer plan,
you should find out whether the plan accepts rollovers and, if so, the types of distributions it accepts as a rollover. You should also find out
about any documents that must be completed before the receiving plan will accept a rollover. Even if a plan accepts rollovers, it might not
accept rollovers of certain types of distributions, such as after-tax amounts. If this is the case and your distribution includes after-tax
amounts, you may wish instead to roll your distribution over to a traditional IRA or Roth IRA or split your rollover amount between the
employer plan in which you will participate and a traditional IRA or Roth IRA. If an employer plan accepts your rollover, the plan may
restrict subsequent distributions of the rollover amount or may require your spouse’s consent for any subsequent distribution. A subsequent
distribution from the plan that accepts your rollover may also be subject to different tax treatment than distributions from OPM. Check
with the administrator of the plan that is to receive your rollover prior to making the rollover.
If you have a Federal Retirement Thrift Savings Plan account, you may roll over the taxable portion of your lump sum into that account.
The Thrift Savings Plan (TSP) will not accept non-taxable (after-tax) monies. To accomplish a rollover to the TSP, you will need to submit
form TSP-60 to us. See Part II Direct Rollover for more information.

Summary
There are two ways you may be able to receive a payment that is eligible for rollover:
1.

We can make certain payments directly to a traditional IRA or Roth IRA that you establish or to an eligible employer plan that will
accept it and hold it for your benefit (”Direct Rollover”); or

2.

We can make the payment to you.

If you choose a Direct Rollover:

•
•
•

Your payment made directly to your traditional IRA or eligible employer plan will not be taxed in the current year and OPM will not
withhold income tax.
The taxable portion of your payment made directly to your Roth IRA is taxable income in the year in which the rollover is paid. OPM
will not withhold income tax unless you notify OPM in writing that 20% tax is to be withheld.
You choose whether your payment will be made directly to your traditional IRA, a Roth IRA, or to an eligible employer plan that
accepts your rollover. Your payment cannot be rolled over to a SIMPLE IRA or a Coverdell Education Savings Account because these
are not traditional IRA’s.
Previous editions are not usable

RI 37-22
Revised July 2010

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The taxable portion of your payment to a traditional IRA or eligible employer plan will be taxed later when you take it out of the traditional IRA or the eligible employer plan. Depending on the type of plan, the later distribution may be subject to different tax treatment
than it would be if you received a taxable distribution from OPM. You must pay tax on the taxable portion rolled into a Roth IRA in
the year in which the rollover is made.

If you choose to have a payment that is eligible for rollover paid to you:

•

You will receive only 80% of the taxable amount of the payment, because the Office of Personnel Management (OPM) is required to
withhold 20% of that amount and send it to the Internal Revenue Service (IRS) as income tax withholding to be credited against your
taxes.

•

The taxable amount of your payment will be taxed in the current year unless you roll it over. If you receive the payment before age
59-1/2, you may have to pay an additional 10% tax.

•

You can roll over all or part of the payment by paying it to your traditional IRA, a Roth IRA, or to an eligible employer plan that
accepts your rollover within 60 days after you receive the payment. The amount rolled over into a traditional IRA or an eligible
employer plan will not be taxed until you take it out of the traditional IRA or the eligible employer plan. You cannot postpone taxation
of taxable (pre-tax) amounts rolled over into a Roth IRA even if you roll it over into a Roth IRA within 60 days.

•

If you want to roll over 100% of the payment, you must find other money to replace the 20% of the taxable portion that was withheld.
If you roll over only the 80% you receive, you will be taxed on the 20% that was withheld and that is not rolled over.

Your Right to Waive the 30-Day Notice Period
Generally, neither a direct rollover nor a payment to you can be made until at least 30 days after your receipt of this notice. Thus, after
receiving this notice, you have at least 30 days to consider whether or not to have your withdrawal directly rolled over. If you do not wish
to wait until this 30-day notice period ends before your election is processed, you may waive the notice period by making an affirmative
election indicating whether or not you wish to make a direct rollover. Your withdrawal will then be processed in accordance with your
election as soon as practical after OPM receives it.

More Information

Once you roll over your after-tax contributions to a
traditional IRA or a Roth IRA, those amounts cannot
later be rolled over to an employer plan.

I. Payments That Can and Cannot Be Rolled Over
Payments from OPM may be “eligible rollover distributions.”
This means that they can be rolled over to a traditional IRA, a
Roth IRA, or to an eligible employer plan that accepts
rollovers. Payments from OPM cannot be rolled over to a
SIMPLE IRA or a Coverdell Education Savings Account.
The interest (taxable) portion of your payment is an eligible
rollover distribution.

b.

After-tax Contributions: The after-tax (non-taxable) portion
of your payment may be rolled into either a traditional IRA, a
Roth IRA or to certain employer plans that accept rollovers of
the after-tax contributions. The following rules apply:
a.

Rollover into a Traditional IRA or a Roth IRA. You can
roll over your after-tax contributions to a traditional IRA
or a Roth IRA either directly or indirectly. OPM can tell
you how much of your payment is the taxable portion and
how much is the after-tax portion.
If you roll over after-tax contributions to a traditional
IRA or a Roth IRA, it is your responsibility to keep track
of, and report to the IRS on the applicable forms, the
amount of these after-tax contributions. This will enable
the nontaxable amount of any future distributions from
the traditional IRA to be determined.

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Rollover into an Employer Plan. You can roll over
after-tax contributions from an employer plan that is
qualified under Code section 401(a) or a section 403(a)
annuity plan to another such plan using a direct rollover if
the other plan provides separate accounting for amounts
rolled over, including separate accounting for the
after-tax employee contributions and earnings on those
contributions. You can also rollover after-tax
contributions from a section 403(b) tax-sheltered annuity
to another section 403(b) tax-sheltered annuity using a
direct rollover if the other tax-sheltered annuity provides
separate accounting for amounts rolled over, including
separate accounting for the after-tax employee
contributions and earnings on those contributions. You
cannot roll over after-tax contributions to a governmental
457 plan. If you want to roll over your after-tax
contributions to an employer plan that accepts these
rollovers, you cannot have the after-tax contributions paid
to you first. You must instruct OPM to make a direct
rollover on your behalf. Also, you cannot first roll over
after-tax contributions to a traditional IRA or a Roth IRA
and then roll over that amount into an employer plan.

Even if your new employer’s plan does not accept a rollover,
you can choose a direct rollover to an IRA. If the employer
plan accepts your rollover, the plan may provide
restrictions on the circumstances under which you may later
receive a distribution of the rollover amount or may require
spousal consent to any subsequent distribution. Check with
the plan administrator of that plan before making your
decision.

The following types of payments cannot be rolled over.
Payments Spread over Long Periods. You cannot roll over a
payment if it is part of a series of equal (or almost equal)
payments that are made at least once a year and that will last
for:

•

Your lifetime (or a period measured by your life
expectancy), or

•

Your lifetime and your beneficiary’s lifetime (or a
period measured by your joint life expectancies), or

•

A period of 10 years or more.

Direct Rollover of a Series of Payments. If you receive a
payment that can be rolled over to an IRA or an eligible
employer plan that will accept it, and it is paid in a series of
payments for less than 10 years, your choice to make or not
make a direct rollover for a payment will apply to all later
payments in the series until you change your election. You are
free to change your election for any later payment in the
series.

II. Direct Rollover
A direct rollover is a direct payment of your lump sum to a
traditional Individual Retirement Arrangement (IRA), a Roth
IRA, or an eligible employer plan that will accept it. You can
choose a direct rollover of all or any portion of your payment
that is an eligible rollover distribution, as described in Part I.
You are not taxed on any taxable portion of your payment for
which you choose a direct rollover to a traditional IRA or
eligible employer plan until you later take it out of the
traditional IRA or eligible employer plan. You are taxed on
any taxable portion rolled into a Roth IRA in the year in
which the rollover is made. No income tax withholding is
required for any taxable portion of your payment for which
you choose a direct rollover to a traditional IRA. Because
there is no tax withholding on amounts less than $200,
generally OPM will not let you choose a direct rollover if
your taxable payment is less than that figure (but see Part IV
below).

Change in tax treatment resulting from a direct rollover.
The tax treatment of any payment from the eligible employer
plan or IRA receiving your direct rollover might be different
than if you received your lump sum in a taxable distribution
directly from OPM.
Direct Rollover to the Thrift Savings Plan (TSP). If you
choose to roll part or all of the taxable portion of your
distribution into your TSP account, you need to submit form
TSP-60, Request for Transfer Into the TSP, along with your
application for payment of the distribution. This form is
available on the internet at www.tsp.gov/forms. Fill out your
portion of the form; we will complete our portion and fax it to
the TSP office for processing. The form must be approved by
the Thrift Savings Board and the Board must notify OPM to
transfer the funds. This process can take two to three weeks.

Direct Rollover to a Traditional IRA or to a Roth IRA.
III. Payment Paid To You

You can open a traditional IRA or a Roth IRA to receive the
direct rollover. If you choose to have your payment made
directly to a traditional IRA or a Roth IRA, contact an IRA
sponsor (usually a financial institution) to find out how to
have your payment made in a direct rollover to a traditional
IRA or a Roth IRA at that institution. If you are unsure of how
to invest your money, you can temporarily establish a
traditional IRA to receive the payment. However, in choosing
a traditional IRA, you may want to make sure that the
traditional IRA you choose will allow you to move all or a
part of your payment to another traditional IRA or to a Roth
IRA at a later date, without penalties or other limitations. See
Internal Revenue Service (IRS) Publication 590, Individual
Retirement Arrangements, for more information on traditional
IRAs and Roth IRAs (including limits on how often you can
roll over between IRAs).

If your payment can be rolled over (see Part I on page 2) but
the payment is made to you, it is subject to 20% federal
income tax withholding on the taxable portion. The payment
is taxed in the year you receive it unless, within 60 days, you
roll it over to a traditional IRA or an eligible employer plan
that accepts rollovers. If you do not roll it over, special tax
rules may apply.

Income Tax Withholding:
Mandatory Withholding. If any portion of your payment can
be rolled over under Part I on page 2 and you do not elect to
make a direct rollover, OPM is required by law to withhold
20% of the taxable amount. This amount is sent to the IRS as
federal income tax withholding. For example, if you can roll
over a taxable payment of $10,000, only $8,000 will be paid
to you because OPM must withhold $2,000 as income tax.
However, when you prepare your income tax return for the
year, unless you make a rollover within 60 days (see
“Sixty-Day Rollover Option”), you must report the full
$10,000 as a taxable payment from OPM. You must report the
$2,000 as tax withheld, and it will be credited against any
income tax you owe for the year. There will be no income tax
withholding if your payments for the year are less than $200.

Direct Rollover to a Plan. If you are employed by a new
employer that has an eligible employer plan and you want a
direct rollover to that plan, ask the plan administrator of that
plan whether it will accept your rollover. An eligible
employer plan is not legally required to accept a rollover.

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Sixty-Day Rollover Option. If you receive a payment that can
be rolled over under Part I on page 2, you can still decide to roll
over all or part of it to a traditional IRA, a Roth IRA, or to an
eligible employer plan that accepts rollovers. If you decide to
roll it over, you must contribute the amount of the payment you
received to a traditional IRA, a Roth IRA, or eligible employer
plan within 60 days after you receive the payment. The portion
of your payment that is rolled over to a traditional IRA or
eligible employer plan will not be taxed until you take it out of
the traditional IRA or the eligible employer plan.

IV. Surviving Spouses, Alternate Payees, and
Other Beneficiaries

You can roll over to a traditional IRA, a Roth IRA, or to an
eligible employer plan up to 100% of your payment that can be
rolled over under Part I on page 2, including an amount equal to
the 20% of the taxable portion that was withheld if you choose
to have the 20% withheld from the rollover amount. If you
choose to roll over 100%, you must find other money within
the 60-day period to contribute to the traditional IRA or to an
eligible employer plan to replace the 20% that was withheld. On
the other hand, if you roll over only the 80% that you received,
you will be taxed on the 20% that was withheld.

If you are a surviving spouse or an alternate payee, you may
choose to have a payment that can be rolled over, as
described in Part I on page 2, paid in a direct rollover to a
traditional IRA, a Roth IRA, or an eligible employer plan or
paid to you. If you have payment made to you, you can
keep it or roll it over yourself to a traditional IRA, a Roth
IRA, or to an eligible employer plan. Thus, you have the
same choices as the employee.

In general, the rules summarized above that apply to
payments to employees also apply to payments to surviving
spouses of employees and to spouses or former spouses
who are “alternate payees.” You are an alternate payee if
your entitlement to payment results from a court order
processed by OPM in connection with a divorce,
annulment, or legal separation.

If you are the designated beneficiary of a deceased
employee or retiree, but not the spouse or an alternate
payee, and the payment is made after 2006, a special rule
may permit you to roll over all or a portion of the
distribution you receive. The distribution must be a direct
trustee-to-trustee transfer to your IRA that was set up to
receive the distribution. The transfer will be treated as an
eligible rollover distribution and the receiving plan will be
treated as an inherited IRA. For more information on an
inherited IRA, see IRS Publication 590.

Example: The taxable portion of your payment that can be
rolled over under Part I on page 2 is $10,000 and you
choose to have it paid to you. You will receive $8,000, and
$2,000 will be sent to the Internal Revenue Service (IRS) as
income tax withholding. Within 60 days after receiving the
$8,000, you may roll over the entire $10,000 to a traditional
IRA or eligible employer plan. To do this, you roll over the
$8,000 you received from the Office of Personnel
Management (OPM), and you will have to find $2,000 from
other sources (your savings, a loan, etc.). In this case, the
entire $10,000 is not taxed until you take it out of the
traditional IRA or an eligible employer plan. If you roll
over the entire $10,000, when you file your income tax
return, you may get a refund of part or all of the $2,000
withheld.

If you are a beneficiary other than a surviving spouse,
alternate payee, or designated beneficiary, you cannot
choose a direct rollover, and you cannot roll over the
payment yourself.
If you are a surviving spouse, an alternate payee, or other
beneficiary, your payment is not subject to the additional
10% tax described in section III above, even if you are
younger than age 59-1/2.

If, on the other hand, you roll over only $8,000, the $2,000
you did not roll over is taxed in the year it was withheld.
When you file your income tax return, you may get a refund
of part of the $2,000 withheld. (However, any tax refund is
likely to be larger if you roll over the entire $10,000.)

How To Obtain Additional Information
This notice summarizes only the Federal (not state or local)
tax rules that might apply to your payment. The rules
discussed above are complex and contain many conditions
and exceptions that are not included in this notice.
Therefore, you may want to consult with the IRS or a
professional tax advisor before you take your payment from
OPM. You can find more specific information on the tax
treatment of payments from qualified employer plans in
IRS Publication 575, Pension and Annuity Income, and IRS
Publication 590, Individual Retirement Arrangements. For
an overview of the tax consequences of payments from the
Civil Service Retirement System or the Federal Employees
Retirement System, you can also consult IRS Publication
721, Tax Guide to U.S. Civil Service Retirement
Benefits.These publications are available from your local
IRS office, on the IRS’s internet website at www.irs.gov, or
by calling 1-800-TAX-FORMS.

Additional 10% Tax If You Are Under Age 59-1/2. If you
receive a payment before you reach age 59-1/2 and you do not
roll it over, then, in addition to the regular income tax, you may
have to pay an extra tax equal to 10% of the taxable portion of
the payment. The additional 10% tax generally does not apply to
(1) payments that are paid after you separate from service with
your employer during or after the year you reach age 55, (2)
payments that are paid because you retire due to disability, (3)
payments that are paid directly to the government to satisfy a
federal tax levy, (4) payments that are paid to an alternate payee
under a qualified domestic relations order, or (5) payments that
do not exceed the amount of your deductible medical expenses.
See IRS Form 5329 for more information on the additional 10%
tax.

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