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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7098
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Hello Stephanie, My wife received a lump-sum distribution

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Hello Stephanie,
My wife received a lump-sum distribution from the SSA in mid-2012. Is there anything that we can do to put some/all of the money in a tax-deferred plan such as an IRA (or something else that achieves a similar result)? My wife is 68 years old.

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

Evidently Stephanie isn't available as the site put your question out for anyone to answer.

Stephen G :

If you'd rather wait for Stephanie, please do so; in the meantime however, I did read your question & the answer to your inquiry is "NO"; any social security distribution or otherwise, is not eligible for any rollover to a tax deferred plan, IRA, or anything similar.

Stephen G :

However, when you receive a lump sum Social Security distribution related to several tax years, it is eligible for special tax treatment.

Stephen G :

Basically, what the tax computation involves, is computing the tax on the lump sum distribution AS IF you had received it in the year(s) that that each portion of the payment was designated for.

Stephen G :

If you use a tax preparer, it is important that you call his or her attention to the fact that you did receive a lump-sum social security distribution and remind he or she that the special tax computation is available.

Stephen G :

So, to summarize, what this situation allows with respect to the lump-sum distribution, is that you are allowed to go back to the years involved and recompute the tax for that year as if the Social Security applicable to that year was received in that year. You would follow that procedure for each portion of the lump=sum payment applicable to a prior year.

Stephen G :

Then you would add up the difference in tax for each year and that total becomes the tax on the lump-sum computation, rather than the tax that would result if the total lump-sum distribution were included in the 2012 tax year, the year the lump sum payment was received.

Stephen G :

in the second line of the last paragraph, the word "computation" should be "distribution".

Stephen G :

Now, depending upon your other income, the tax due on the lump-sum distribution could be as little as zero, depending whether or not the Social Security is taxable in those prior years.

Stephen G :

I'll be happy to discuss this further and answer any questions you may have. Just let me know when you are back online; all you need to do is type anything in & I will automatically get an email that you have returned.

Stephen G :

im here

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