You can roll over all or part of the distribution you receive from a qualified employee plan or a qualified employee annuity into another qualified plan or into your IRA. No tax would be currently due on the amount you roll over. The part of the distribution that is not rolled over would be treated as ordinary income.
A rollover generally needs to be made within 60 days from the date you receive the distribution. You can do a direct rollover from one qualified plan to another, or to your IRA. Or you can receive the distribution and then roll it over to a qualified plan or IRA within 60 days. In this case, the administrator of the plan from which the distribution is made will withhold a 20% income tax from the amount distributed. If you decide to roll over the amount of the distribution before withholding, you will have to put in money to replace the 20% tax that was withheld. Otherwise, that 20% will be subject to tax in the current year.
If you are a surviving spouse you can roll over a distribution you receive from a qualified plan in which your deceased spouse participated. But a beneficiary other than the participant’s spouse cannot roll over a distribution.
Disability Pensions
Disability benefits are generally taxable if they are provided by your employer. They are reported as wages for tax purposes until you reach minimum retirement age. Once you reach minimum retirement age, your disability benefits are reported as a pension or annuity.
You may be entitled to a tax credit if you were permanently and totally disabled when you retired. You can see IRS Publication 524, Credit for the Elderly or Disabled, to see if you qualify. This credit is claimed on Schedule 3 if you file Form 1040A, or on Schedule R if you file Form 1040.
Purchased Annuity Contracts
If you buy a commercial annuity on your own, with life insurance proceeds, for example, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan. You would generally have to use the General Rule to determine the taxable portion of the annuity payments you receive.