West Virginia Comprehensive Special Tax Notice Regarding Plan Payments
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How to fill out Comprehensive Special Tax Notice Regarding Plan Payments?
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FAQ
West Virginia has fully conformed with all federal tax law changes made in 2020 impacting West Virginia taxable income.
The 402(f) notice provides important information about rolling over an eligible rollover distribution (i.e., generally, any lump sum payment or series of installment payments over a period of less than 10 years) to another eligible retirement plan, or individual retirement account (IRA).
All former DROP participants are eligible to roll over their DROP accumulation to the FRS Investment Plan. Rollovers from former DROP participants may be transferred to the FRS Investment Plan as long as they come into the Plan from a qualified retirement account, such as an IRA, 403(b), 457, 401(a), 401(k), etc.
Your rollover is reported as a distribution, even when it is rolled over into another eligible retirement account. Report your gross distribution on line 15a of IRS Form 1040. This amount is shown in Box 1 of the 1099-R. Report any taxable portion of your gross distribution.
This notice is intended to help you decide whether to do such a rollover. This notice describes the rollover rules that apply to payments from the Plan that are not from a designated Roth account (a type of account with special tax rules in some employer plans).
However, it's important to realize that if you take your DROP account as a lump sum, it will be taxed at a rate of 22% (20% federal, 2% state). When you're talking about large sums of money, 22% is significant. Rollover the funds to a qualified plan.
You are receiving this notice because all or a portion of a payment you are receiving from the Plan is eligible to be rolled over to either an IRA or an employer plan; or if your payment is from a Designated Roth Account to a Roth IRA or Designated Roth Account in an employer plan.
However, it's important to realize that if you take your DROP account as a lump sum, it will be taxed at a rate of 22% (20% federal, 2% state). When you're talking about large sums of money, 22% is significant. Rollover the funds to a qualified plan.
Deferred retirement option plans (DROPs) are of benefit to both employees and employers. In exchange for continuing to work past your eligible retirement age, an employer will set aside annual lump sum payments into an interest-bearing account.
Under the special rule, the net unrealized appreciation on the stock included in the earnings in the payment will not be taxed when distributed to you from the Plan and will be taxed at capital gain rates when you sell the stock.