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Home > Savings Plan > Withdrawal & Payout Taxation

Taxation of Withdrawals and Program Payouts

   
In general, your before-tax contributions, Company matching contributions and investment earnings on all types of contributions are taxable when you receive them. The actual tax treatment will depend on your age at the time of receipt. You can find more information about tax treatment of savings program distributions in the "Special Tax Information Notice," which is included with your quarterly statement and also available by calling the information line.

Before 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 does not apply to your payment if it is:
  • paid to you because you separate from service with your employer during or after the year you reach age 55-1/2,
  • paid to you because you retire due to disability,
  • paid to you as equal (or almost equal) payments over your life or life expectancy (or your and your Beneficiary's lives or life expectancies), or
  • used to pay certain medical expenses.
See IRS form 5329 and the Special Tax Notice included with your savings plan statement for more information on the addititonal 10% tax. You can avoid the income and penalty tax if you roll the taxable portion of your payment over into an IRA or other eligible retirement plan within the time period permitted by law.

Beneficiaries are never subject to the 10% tax penalty, regardless of your age at death.

At Age 59-1/2 or Later

If you make a withdrawal or receive a savings program distribution after age 59-1/2, you will not have to pay the 10% penalty. If you were at least age 50 on January 1, 1986, the law generally makes 10-year forward averaging (based on 1986 tax rates) available as an alternative, as well as special capital gains treatment provided you were a participant before 1974.

To be sure you are using your benefits to their full advantage, you should check with a tax advisor regarding the specific requirements for using these and other forms of favorable treatment that may apply to your payout. The Benefit Plans Office cannot give you tax advice.

Rollovers and Withholding

Withdrawals and lump sum distributions of your before-tax contributions and Company matching contributions, as adjusted for investment earnings and losses, can be rolled over to an IRA or other eligible retirement plan. Required minimum distributions to employees who have reached age 70-1/2 or retired from the Company after age 70-1/2, and distributions paid out in installments are not eligible for such a rollover. Beginning with distributions on or after January 1, 2002, you may rollover the non-taxable (your after-tax contributions) portion of your distribution to an IRA and certain qualified defined contribution plans.

You can roll over all or a portion of your eligible plan payouts either directly or indirectly to an IRA or other eligible retirement plan. With a direct rollover, State Street Bank and Trust will send you a check payable to the trustee of the eligible IRA or plan you designate. If you elect a direct rollover, no federal tax withholding will apply to your rollover amount. The portion that is not rolled over will be subject to mandatory 20% tax withholding.

If you want to roll over your eligible payout yourself — an indirect rollover — there are some important facts to keep in mind:
  • Mandatory 20% tax withholding will apply to the distribution when the payout is made to you.
  • Your rollover must be made within 60 days of the day you receive your payout.
  • Any portion of the taxable part of your payout not rolled over will be subject to income and penalty taxes (if applicable).
Other withholding rules apply to distributions that are not eligible for a rollover. You will be provided with information on those rules prior to the distribution.

Last updated: Thursday April 21 2005
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