North American Pension Services, LLC

Pensions

Pensions Frequently Asked Questions

I've terminated employment and would like to receive a distribution of my pension and/or profit sharing assets. What steps do I need to take, and what are my options?

What is a Rollover?

What are the tax consequences of taking a distribution in the form of a Rollover?

I'd like to rollover my pension and/or profit sharing distribution to a Self-Directed Individual Retirement Account (IRA), but I don't know where to get one. Can you help?

What are the tax consequences of taking a distribution in the form of Cash?

How can I get money out of my pension and/or profit sharing plan while I continue employment?

What is a Participant Loan and how can I get one?

What are the tax consequences of taking a Participant Loan?

I've terminated employment and would like to receive a distribution of my pension and/or profit sharing plan assets. What steps do I need to take, and what are my options?

The timing of distribution varies considerably by employer due to the differences in the timing of match and profit sharing contributions; therefore, you will need to contact your employer or NAPS, LLC to determine the earliest date of distribution. No distributions can take place prior to the deposit of your last pension and/or profit sharing deferral contribution.

In order to request a distribution, you will need to complete a Plan Distribution Request Package and return it to NAPS, LLC for processing. Upon receipt of your completed and approved request, NAPS, LLC will process your distribution within one to three weeks.

The most common distribution option is a Rollover to a Self-Directed Individual Retirement Account (IRA) or to your new employer's pension and/or profit sharing plan. A Cash Distribution is also available, in which your funds are simply cashed out and paid directly to you.

What is a Rollover?

A rollover is a tax-free transfer of assets from a qualified plan into a Self-Directed Individual Retirement Account (IRA) or another qualified plan. A participant in a pension and/or profit sharing plan may defer the tax on a distribution by rolling it over. You may rollover your assets to your new employer's pension and/or profit sharing plan only if their plan document allows for rollovers.

What are the tax consequences of taking a distribution in the form of a Rollover?

By rolling over your pension and/or profit sharing plan assets to a Self-Directed Individual Retirement Account (IRA) or other qualified plan, you defer taxes until retirement or such time that you take a cash distribution from the IRA or qualified plan. A direct rollover distribution must be reported on Form 1099-R, which you will receive in January of the year following the year in which the distribution takes place. In Box 7 of Form 1099-R, the Distribution code will be a G for a rollover to an IRA or�to your new employer's pension and/or profit sharing plan. This�code means that no taxes are required to be withheld; however, the distribution must be reported on your Form 1040 for the year of the distribution.

I'd like to rollover my pension and/or profit sharing plan distribution to a Self-Directed Individual Retirement Account (IRA), but I don't know where to get one. Can you help?

Yes. NAPS, LLC provides complete investment services, including Self-Directed Individual Retirement Accounts. Your Plan Distribution Request Package will include information on the companies with whom we do business. Once you make your decision, we will promptly send all of the necessary application forms to you for completion. By completing your rollover distribution through NAPS, LLC you have the ease of working directly with the company that is handling the distribution, and the security of working with people that you have known and trusted for years.

What are the tax consequences of taking a distribution in the form of Cash?

Cash distributions are subject to a mandatory 20% tax withholding by the employer. However, the distribution is taxable as ordinary income in the year that distribution is taken; therefore, if your tax bracket is higher than 20%, you will pay more taxes upon filing your Form 1040.

You will receive a Form 1099-R in January of the year following the year in which the distribution takes place. In most cases, in Box 7 of Form 1099-R, the Distribution Code will be a 1, which indicates a premature distribution of plan funds. All premature distributions are subject to a 10% early withdrawal penalty by the IRS, which is paid when filing Form 1040.

There are cases in which the 10% early withdrawal penalty does not apply. These are: distributions paid to participants who have reached age 59 1/2 (Code 7), distributions paid due to a death benefit (Code 4), and distributions paid as a result of a qualified Domestic Relations Order (Code 2).

How can I get money out of my pension and/or profit sharing plan while I continue employment?

Most plans allow for Participant Loans.

What is a Participant Loan and how can I get one?

Participant Loans provide a means for participants to access their pension and/or profit sharing plan account balances without incurring a tax liability. Most plans allow for participant loans from their pension and/or profit sharing plan deferral account only. Generally, participants may have up to two outstanding loans at one time. Please consult with your employer to determine whether your plan allows for Participant Loans.

Participant Loans are limited to 50% of your pension and/or profit sharing plan account balance, with a minimum of $1,000 and a maximum of $50,000. You may elect any amount up to the 50%/$50,000 maximum. Please keep in mind that all loans are subject to a $275 processing fee, which is withdrawn from your account in addition to the loan.

The interest rate for Participant Loans is a prime plus 1%. The advantage of a pension and/or profit sharing plan loan over a conventional loan is that all interest is paid directly to your pension and/or profit sharing plan account rather than being lost to the financial institution.

Your loan must be paid back over a period of no more than five years. Your loan is repaid via direct after-tax deductions from your paychecks; therefore, the frequency of your loan payments coincide with your paychecks. Your employer handles all of the details, leaving you free from the worry of making payments.

To obtain a Participant Loan you must complete an Application for Loan Form and forward it to NAPS, LLC The plan administrator must approve all loan requests. Upon receipt of your completed and approved form, NAPS, LLC will process your distribution within one to three weeks.

What are the tax consequences of taking a Participant Loan?

The advantage of a Participant Loan is the avoidance of any tax consequences as long as the loan is paid in full within five years. If at any point the loan is defaulted, the remaining loan balance is immediately considered distributed and is taxable as ordinary income.

Additionally, if you terminate employment and are no longer able to repay the loan via after-tax payroll deductions, you may continue to avoid tax consequences by paying the loan in full upon termination of employment. If the loan is defaulted upon termination of employment, the remaining account balance is considered distributed and is taxable as ordinary income.

Any taxable loan balance must be reported to the IRS on Form 1099-R, which you will receive in January of the year following the year in which the distribution takes place. In Box 7 of Form 1099-R, the Distribution Code will be a 1, which indicates a premature distribution of plan funds. All premature distributions are subject to a 10% early withdrawal penalty by the IRS.

North American
Pension Services, LLC
2542 South Rochester Road
Rochester Hills, MI
48307-3817 USA
Phone: (248) 723-4220
Fax: (248) 723-4224
Email: [email protected]