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You can roll over lump sum payments representing the deceased's retirement contributions and applicable interest and the FERS Basic Employee Death Benefit.
An eligible payment can be paid either to you or directly to an individual retirement account or other employer sponsored plan. Your choice will affect the amount of taxes you owe.
We are required to withhold Federal income tax from taxable payments over $200 at the rate of 20 percent. However, you may choose to take all or part of these payments in a direct rollover to an individual retirement account or an employer-sponsored retirement plan that accepts rollovers. The taxable portion can be rolled over into the Thrift Saving Plan. If you make this election, we will not withhold the Federal income tax from the taxable payments.
You can open an individual retirement account to receive a direct rollover. You must contact the individual retirement account sponsor to find out how to have your payment made to your account. If you are unsure of how to invest your money, you may wish to temporarily establish an account to receive the payment. However, you may wish to consider whether or not you may move any or all of the monies to another account at a later date without penalties or limitations.
If you choose to have the payment made to you and it is over $200, it is subject to the 20 percent Federal income tax withholding. The payment is taxed in the year in which it is received unless within 60 days after receiving it, you roll it over to an individual retirement account or retirement plan that accepts rollovers. You can rollover up to 100 percent of the eligible distribution, including the 20 percent withholding. To do so, you must replace the 20 percent withholding within the 60 day period. You will be taxed on any amount that you do not roll over. For example, if you roll over only the 80 percent of the distribution, you will be taxed on the remaining 20 percent.
You can find more information about the taxation of payments from qualified retirement plans from the following Internal Revenue Service publications:
We will withhold Federal income tax of ten percent if your total taxable lump sum is less than $200. We will request a rollover election when you are eligible for a payment of $200 or more.
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