Reply To: RetroPayment from a Cash Balance Plan

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Alan S.

This is very unusual, and she should insist on a total explanation in writing. I am not familiar with this exact set of circumstances, but if excessive amounts were contributed to the plan over the years, and such amounts must therefore be distributed out of the plan, the amount distributed will not be eligible for rollover. If the amounts are significant, it’s possible that a benefits attorney should be consulted.

A lump sum payment would have to be reported in the year distributed, and while this would avoid any amended tax returns, it could certainly result in a much higher marginal tax rate for the year distributed. If she made after tax contributions to the pension plan, any amount distributed needs to be properly allocated between taxable and non taxable amounts.