Under current tax laws, your Roth 401(k) contributions, which you made on an after-tax basis, and their associated investment earnings are not taxable when you receive them as a qualifying 401(k) Retirement Savings Plan benefit. To qualify for this favorable tax treatment, you must meet these criteria at the time you receive your Roth funds from the 401(k) Retirement Savings Plan:
• Your Roth account in the 401(k) Retirement Savings Plan must be at least five years old (this requirement also applies to distributions due to death or disability);
and
• You must be age 59½ or older.
Any Company Matching Contributions made on Roth 401(k) contributions are accounted separately in your 401(k) Retirement Savings Plan account; they are not considered to be Roth funds in the 401(k) Retirement Savings Plan.
Tax Summary
In addition to describing the U.S. federal tax treatment of distributions, this section explains how you can continue to defer U.S. federal income tax on your retirement savings in the 401(k) Retirement Savings Plan. All or part of any payments you receive from before-tax funds in the 401(k) Retirement Savings Plan (regular, before-tax catch-up and Company Matching Contributions and their associated investment earnings) may be eligible for rollover to a traditional IRA, Roth IRA or another eligible plan. Those funds cannot be rolled over to a SIMPLE IRA or a Coverdell Education Savings Account (formerly known as an education IRA). Payments you receive from Roth funds (Roth 401(k) contributions and their associated investment earnings) may be rolled over to a Roth IRA or another employer’s eligible plan that accepts Roth rollover contributions.
Remember, this information is only a summary. More information is available from the IRS and professional tax advisors.
An “eligible plan” (or “tax-qualified plan”) includes a plan qualified under Section 401(a) of the Internal Revenue Code, including a 401(k) plan, profit-sharing plan, defined benefit plan, stock bonus plan, employee stock purchase plan, a money purchase plan, a Section 403(a) annuity plan, a Section 403(b) tax-sheltered annuity and an eligible Section 457(b) plan maintained by a governmental employer (a “governmental 457 plan”).
An eligible plan is not legally required to accept a rollover. Before you decide to roll over your payment to another tax-qualified plan, you should find out whether the plan accepts rollovers, and if so, the types of distributions it accepts as a rollover. You should also find out about any documents that are required to be completed before the receiving plan will accept a rollover.
Even if a plan accepts rollovers, it might not accept rollovers of certain types of
distributions, such as after-tax amounts and Roth contributions. If this is the case, and your distribution includes after-tax amounts from a predecessor plan or Roth amounts, you may want instead to roll your distribution over to a traditional IRA and/or Roth IRA, or to split your rollover amount between the tax-qualified plan in which you will
participate and a traditional or Roth IRA. If a tax-qualified plan accepts your rollover, the plan may restrict subsequent distributions of the rollover amount or may require your spouse’s consent for any subsequent distribution. A subsequent distribution from the plan that accepts your rollover may also be subject to different tax treatment than
distributions from the 401(k) Retirement Savings Plan. Check with the plan administrator that is to receive your rollover before making the rollover.
A payment from the 401(k) Retirement Savings Plan that is eligible for “rollover” can be taken in two ways. You can have all or any portion of your payment either:
• Paid in a “direct rollover” to a traditional and/or Roth IRA or, if you choose, to another eligible plan that will accept it; or
• Paid to you.
If you choose a direct rollover:
• If rolled over to a traditional IRA or another tax-qualified plan, your payment received from before-tax funds is not taxed in the current year, and no income tax is withheld.
• If rolled over to a Roth IRA, your payment received from before-tax funds in the 401(k) Retirement Savings Plan will be taxed, but income tax is not required to be withheld and the 10% additional tax on early distributions will not apply (unless you take the amount rolled over out of the Roth IRA within five years, counting from January 1 of the year of the rollover);
• Your payment received from Roth funds in the 401(k) Retirement Savings Plan is not taxed and no income tax is withheld;
• Your payment is made directly to your traditional and/or Roth IRA or, if you choose, to another tax-qualified plan that accepts your rollover.
• Your benefit cannot be rolled over to a SIMPLE IRA or Coverdell Education Savings Account.
• With a traditional IRA or other eligible plan, your payment is taxed later when you take it from the plan. Depending on the type of plan, the later distribution may be subject to different tax treatment than it would be if you received a taxable distribution from the 401(k) Retirement Savings Plan.
• Under current tax law, your Roth payment is not taxed when you take it out of the Roth IRA, if you meet the Roth IRA distribution rules described in IRS Publication 590, Individual Retirement Arrangements (IRAs), IRS Publication 590-A,
Contributions to Individual Retirement Arrangements (IRAs and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), as
If you choose to have a taxable 401(k) Retirement Savings Plan payment that is eligible for rollover paid to you:
• You receive only 80% of the payment, because the 401(k) Retirement Savings Plan is required to withhold 20% of the taxable amount of the payment and send it to the IRS as income tax withholding to be credited against your taxes.
• Your payment is taxed in the current year unless you roll it over. You may be able to use special tax rules that could reduce the tax you owe. However, if you receive the payment before age 59½ you may also have to pay an additional 10% tax.
• You can roll over the payment by paying it to your traditional and/or Roth IRA or to another tax-qualified plan that accepts your rollover within 60 days of receiving the payment. The amount rolled over is not taxed until you take it out of the traditional IRA or employer plan.
• If you want to roll over 100% of the payment to a traditional and/or Roth IRA or an eligible plan, you must find other money to replace the 20% that was withheld.
If you roll over only the 80% that you received, you are taxed on the 20% that is not rolled over.
• If the distribution of your Roth funds meets IRS regulations, no taxes are withheld from your Roth funds.
To speak with a Customer Service Representative, call Freescale Rewards Customer Service at 888-375-2367 (888-FSL-BENS).
Payments That Can and Cannot Be Rolled Over Non-Taxable Payments
After-tax employee contributions, other than Roth 401(k) contributions, generally are contributions you make from your own pay that are already taxed. The 401(k)
Retirement Savings Plan does not allow non-Roth, after-tax contributions today, but they may have been allowed under a predecessor plan or rolled over to the 401(k)
Retirement Savings Plan. Distributions that include non-Roth, after-tax contributions may be rolled directly into an IRA or into another employer plan qualified under Section 401(a) or 403(a) that accepts after-tax contributions and separately accounts for them.
You may roll over to another employer plan all of a payment that includes after-tax contributions, but only through a direct rollover. You can do a 60-day rollover to an employer plan of part of a payment that includes after-tax contributions, but only up to the payment amount that would be taxable if not rolled over. Also, you cannot first roll over non-Roth, after-tax contributions to a traditional IRA and then roll over that amount into an employer’s tax-qualified plan. You also cannot roll over non-Roth, after-tax contributions to a governmental 457 plan.
Freescale Rewards Customer Service should be able to tell you how much of your payment is the taxable portion and how much (if any) is the non-Roth, after-tax employee contribution portion. It is your obligation to keep track of the non-Roth, after-tax contributions you roll over to a traditional IRA and report them to the IRS on the applicable forms. This will make it possible to determine the nontaxable amount of any future distributions from the traditional IRA.
The following types of payment cannot be rolled over:
• Payments Spread Over Long Periods: You cannot roll over a payment if it is part of a series of equal (or almost equal) payments that are made at least once a year and will last for:
— Your lifetime (or life expectancy);
— Your lifetime and your beneficiary’s lifetime (or life expectancies); or
— A period of 10 years or more.
• Required Minimum Payments: Beginning in the year you reach age 70½ or retire, whichever is later, a certain portion of your payment cannot be rolled over because it is a “required minimum payment” that must be paid to you.
• Corrective Distributions: A distribution that is made to correct a failed nondiscrimination test or because legal limits on certain contributions were exceeded cannot be rolled over.
• Loans Treated as Distributions: The amount of a qualified plan loan that becomes a taxable deemed distribution because of a default cannot be rolled over. However, a loan offset amount is eligible for rollover, as described in Loans from Your Account, beginning on page 146. Call Freescale Rewards Customer Service to ask if distribution of your loan qualifies for rollover treatment.
• Hardship Distributions: A hardship distribution from a qualified plan is not eligible for rollover.
• Automatic Enrollment Contributions: Payments of certain automatic enrollment contributions requested to be withdrawn within 90 days of the first contribution.
Rollovers of Distributions Direct Rollovers
You can choose a direct rollover of all or any portion of your payment that is an eligible rollover distribution, as described above. In a direct rollover, the eligible rollover
distribution is paid directly from the 401(k) Retirement Savings Plan to a traditional or Roth IRA or other eligible employer plan that accepts rollovers. If you choose a direct rollover, you are not taxed on a payment until you later take it out of the IRA or the other eligible employer plan. Remember, no federal income tax withholding is required for any portion of your 401(k) Retirement Savings Plan benefits for which you choose a direct rollover.
Direct Rollover to an IRA
You can open IRAs to receive a direct rollover: a traditional IRA for regular 401(k) funds and a Roth IRA for Roth 401(k) funds. If you choose to have your payment made directly to an IRA, contact an IRA sponsor (usually a financial institution) to find out how to have
Direct Rollover to an Employer’s Tax-Qualified Plan
If your new employer has an eligible (tax-qualified) plan, including Section 403(b) annuities and Section 457 government plans, and you want to make a direct rollover to that plan, ask the administrator of that plan whether it will accept a rollover and the type of rollovers it will accept.
An employer plan is not legally required to accept a rollover. If your new employer’s plan does not accept a rollover, you can choose a direct rollover to a traditional and/or Roth IRA.
If the employer plan accepts your rollover, the plan may provide restrictions on the circumstances under which you may later receive a distribution of the rollover amount or may require spousal consent to any subsequent distribution. Check with the
administrator of that plan before making your decision.
Change in Tax Treatment Resulting from a Direct Rollover
The tax treatment of any payment from the eligible employer plan or traditional IRA receiving your direct rollover might be different than if you received your benefit in a taxable distribution directly from the 401(k) Retirement Savings Plan. However, if you have your benefit rolled over to a Section 403(b) annuity, governmental 457 plan or traditional IRA in a direct rollover, your benefit will no longer be eligible for that special treatment (see Additional 10% Tax If You Are Under Age 59½ on page 145).
Direct Rollover of a Series of Payments
If you receive eligible rollover distributions that are paid in a series for less than 10 years, your choice to make or not make a direct rollover for a payment applies to all later payments in the series until you change your election. You are free to change your election for any later payment in the series.
Taxes on a Payment Made to You
If you have the payment made to you, it is subject to 20% income tax withholding. The payment is taxed in the year you receive it unless, within 60 days, you roll it over to a traditional and/or Roth IRA or another eligible plan that accepts rollovers. If you do not roll it over, special tax rules may apply.
Taxes are not withheld on qualifying distributions of Roth contributions and their associated investment earnings.
Mandatory Income Tax Withholding
If any portion of the payment to you is an eligible rollover distribution, and you do not elect a direct rollover, the 401(k) Retirement Savings Plan is required by law to withhold 20% of the taxable amount. This amount is sent to the IRS as federal income tax withholding.
Voluntary Income Tax Withholding
If any portion of your payment is not an eligible rollover distribution but is taxable, the mandatory withholding rules described above do not apply. In this case, you may choose not to have withholding apply to that portion. Freescale Rewards Customer Service can provide you the appropriate election form.
See IRS Form 5329 for more information on the additional 10% tax.
60-Day Rollover Option
If you have an eligible rollover distribution paid to you, you can still decide to roll over all or part of it to a traditional and/or Roth IRA or another eligible plan that accepts rollovers.
If you decide to roll over, you must contribute the payment amount you received to a traditional and/or Roth IRA or another eligible plan within 60 days after you receive the payment. The portion of your payment that is rolled over will not be taxed until you take it out of the IRA or the other eligible plan.
You can roll over up to 100% of the eligible rollover distribution, including an amount equal to the 20% that was withheld. If you choose to roll over 100%, you must find other money within the 60-day period to contribute to the traditional and/or Roth IRA or the other eligible plan to replace the 20% that was withheld. On the other hand, if you roll over only the 80% that you received, you will be taxed on the 20% that was withheld.
Example: If your eligible rollover distribution is $10,000, only $8,000 will be paid to you because the 401(k) Retirement Savings Plan must withhold $2,000 as income tax.
However, when you prepare your income tax return for the year, you will report the full
$10,000 as a payment from the 401(k) Retirement Savings Plan. You will report the
$2,000 as tax withheld, and it will be credited against any income tax you owe for that year.
Example: Your eligible rollover distribution is $10,000 and you choose to have it paid to you. You will receive $8,000 and $2,000 will be sent to the IRS as income tax
withholding. Within 60 days after receiving the $8,000 you may roll over the entire
$10,000 to a traditional IRA or eligible plan.
To do this, you roll over the $8,000 you received from the 401(k) Retirement Savings Plan, and you will have to find $2,000 from other sources (your savings, a loan, etc.). In this case, the entire $10,000 is not taxed until you take it out of the IRA or eligible plan.
If you roll over the entire $10,000, when you file your income tax return you may get a refund of part or all of the $2,000 withheld. If, on the other hand, you roll over only
$8,000, the $2,000 you did not roll over is taxed in the year it was withheld. When you file your income tax return, you may get a refund of part of the $2,000 withheld. (However, any refund is likely to be larger if you roll over the entire $10,000.)
Additional 10% Tax If You Are Under Age 59½
If you receive a payment before you reach age 59½ and you do not roll it over, then, in addition to the regular income tax, you may have to pay an extra tax equal to 10% of the taxable portion of the payment. The additional 10% tax generally does not apply to your payment if it is:
• Paid to you because you separate from Freescale during or after the year you reach age 55;
• Paid because you retire due to disability;
• Paid to you as equal (or almost equal) payments over your life or life expectancy (or your life expectancy and your beneficiary’s life expectancy);
• Used to pay certain deductible medical expenses;
• Paid directly to the government to satisfy a federal tax levy;
• Paid to you during a period of at least 180 days of active duty military service on or after December 31, 2007; or
• Paid to an alternate payee under a Qualified Domestic Relations Order.
The additional 10% tax will normally not apply to distributions from a governmental 457 plan, except to the extent the distribution is attributable to an amount you rolled over to that plan (adjusted for investment returns) from the 401(k) Retirement Savings Plan. Any amount rolled over from a governmental 457 plan to the 401(k) Retirement Savings Plan will become subject to the additional 10% tax if it is distributed to you before you reach age 59½, unless one of the exceptions applies.
Surviving Spouses, Alternate Payees and Other Beneficiaries In general, the rules summarized in this section that apply to Freescale
employees/retirees also apply to payments to surviving spouses or former spouses who are “alternate payees” under a Qualified Domestic Relations Order (QDRO), which is an order issued by a court, usually in connection with a divorce or legal separation. Some of these rules also apply to a deceased Freescale retiree’s beneficiary who is not a spouse.
However, there are some exceptions for payments to surviving spouses, alternate payees and other beneficiaries that should be mentioned.
If You Are a Surviving Spouse, Alternate Payee or Another Beneficiary
You may choose to have an eligible rollover distribution paid in a direct rollover to a traditional and/or Roth IRA or another eligible plan, or paid to you. If you have it paid to you, you can keep it or roll it over yourself to a traditional and/or Roth IRA or to another eligible employer plan that accepts rollovers.
Your payment is generally not subject to the additional 10% tax, even if you are younger than age 59½ (see Additional 10% Tax If You Are Under Age 59½ on page 145).
You may be able to use the special tax treatment for lump-sum distributions. If you receive a payment because of the employee’s death, you may be able to treat the payment as a lump-sum distribution if the employee met the appropriate age
requirements, even if the employee did not have five years of participation in the 401(k) Retirement Savings Plan.
Where to Go for More Information
This notice summarizes only the U.S. federal (not state or local) tax rules that may apply to your payment. The rules described in this section are complex and contain many conditions and exceptions that are not included in this book. Therefore, you should consult a professional tax advisor before you take a payment of your benefits from the
This notice summarizes only the U.S. federal (not state or local) tax rules that may apply to your payment. The rules described in this section are complex and contain many conditions and exceptions that are not included in this book. Therefore, you should consult a professional tax advisor before you take a payment of your benefits from the