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6. Dividends on employer securities. 7. The cost of life insurance coverage. Your rollover into a traditional IRA may include both amounts that would be taxable and amounts that wouldn’t be taxable if they were distributed to you, but not rolled over. To the extent the distribution is rolled over into a tra- ditional IRA, it isn’t includible in your income. Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. See Form 8606 under Distributions Fully or Partly Taxable in Pub. 590-B. Rollover by nonspouse beneficiary. If you are a desig- nated beneficiary (other than a surviving spouse) of a de- ceased employee, you can roll over all or part of an eligi- ble rollover distribution from one of the types of plans listed above into a traditional IRA. You must make the roll- over by a direct trustee-to-trustee transfer into an inherited IRA. You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. For more informa- tion, see Distributions after the employee's death under Tax on Excess Accumulation in Pub. 575. Written explanation to recipients. Before making an el- igible rollover distribution, the administrator of a qualified retirement plan must provide you with a written explana- tion. It must tell you about all of the following. • Your right to have the distribution paid tax free directly to a traditional IRA or another eligible retirement plan. • The requirement to withhold tax from the distribution if it isn’t paid directly to a traditional IRA or another eligi- ble retirement plan. • The tax treatment of any part of the distribution that you roll over to a traditional IRA or another eligible re- tirement plan within 60 days after you receive the dis- tribution. • Other qualified retirement plan rules, if they apply, in- cluding those for lump-sum distributions, alternate payees, and cash or deferred arrangements. • How the plan receiving the distribution differs from the plan making the distribution in its restrictions and tax consequences. The plan administrator must provide you with this writ- ten explanation no earlier than 90 days and no later than 30 days before the distribution is made. However, you can choose to have a distribution made less than 30 days after the explanation is provided as long as both of the following requirements are met. • You are given at least 30 days after the notice is provi- ded to consider whether you want to elect a direct roll- over. TIP • You are given information that clearly states that you have this 30-day period to make the decision. Contact the plan administrator if you have any questions regarding this information. Withholding requirement. Generally, if an eligible roll- over distribution is paid directly to you, the payer must withhold 20% of it. This applies even if you plan to roll over the distribution to a traditional IRA. You can avoid withholding by choosing the direct rollover option, dis- cussed later. Exceptions. The payer doesn’t have to withhold from an eligible rollover distribution paid to you if either of the following conditions applies. • The distribution and all previous eligible rollover distri- butions you received during your tax year from the same plan (or, at the payer's option, from all your em- ployer's plans) total less than $200. • The distribution consists solely of employer securities, plus cash of $200 or less in lieu of fractional shares. The amount withheld is part of the distribution. If you roll over less than the full amount of the distri- bution, you may have to include in your income the amount you don’t roll over. However, you can make up the amount withheld with funds from other sources. Other withholding rules. The 20% withholding re- quirement doesn’t apply to distributions that aren’t eligible rollover distributions. However, other withholding rules ap- ply to these distributions. The rules that apply depend on whether the distribution is a periodic distribution or a non- periodic distribution. For either of these types of distribu- tions, you can still choose not to have tax withheld. For more information, see Pub. 575. Direct rollover option. Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a traditional IRA. The plan isn’t required to give you this option if your eligible rollover distributions are expected to total less than $200 for the year. Withholding. If you choose the direct rollover option, no tax is withheld from any part of the designated distribu- tion that is directly paid to the trustee of the traditional IRA. If any part is paid to you, the payer must withhold 20% of that part's taxable amount. Choosing an option. Table 1-5 may help you decide which distribution option to choose. Carefully compare the effects of each option. CAUTION ! Chapter 1 Traditional IRAs Page 25