Lump-Sum Distribution

AAA

DEFINITION of 'Lump-Sum Distribution'

A one-time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment.

INVESTOPEDIA EXPLAINS 'Lump-Sum Distribution'

A commission check or a pension plan distribution because of the pensioner's death are two examples of lump-sum distributions.

In general, distributions from qualified plans are treated as lump sum, if the following requirements are met:

1. The total plan balance is distributed over the same tax year.

2. The distribution is made as a result of the employee:
- attaining age 59.5
- being deceased (applicable to beneficiaries)
- separating from service (not applicable to self-employed individuals - but applies to their common-law employees) or
- being disabled (applicable only to self-employed individuals).

3. The distribution occurs after five years of participation (this requirements is waived for beneficiaries).

RELATED TERMS
  1. Lump-Sum Payment

    A one-time payment for the total or partial value of an asset. ...
  2. Investment In The Contract

    As this term applies to annuities, the principal amount that ...
  3. Forward Averaging

    Treating lump-sum retirement-plan distributions as if they occurred ...
  4. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  5. Capital Gains Treatment

    The specific taxes assessed on investment capital gains as determined ...
  6. Variable Death Benefit

    The amount paid to a decedent's beneficiary that is dependent ...
RELATED FAQS
  1. How do my siblings and I receive inherited pension benefit payments from our deceased ...

    Generally, the provisions of the plan document determine the distribution options available to beneficiaries of retirement ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Selecting The Payout On Your Annuity

    Make sure you understand your options for withdrawing your funds from this complex instrument.
  2. Options & Futures

    Live Longer, Retire Younger: Can You Do It?

    Use this vehicle to make sure your payout lasts as long as you do.
  3. Options & Futures

    8 Ways To Help Family Members In Financial Trouble

    Find out how to help the ones you love without hurting yourself.
  4. Retirement

    Pension Law Could Reduce Your Payout

    Discover how this act negatively affects your lump-sum withdrawals.
  5. Retirement

    Lump Sum Versus Regular Pension Payments

    If you're about to retire, you may be facing this dilemma soon. Find out what your options are.
  6. Taxes

    How To Use Your IRA As A Last-Minute Tax Deduction

    While some people are stressing over their taxes, there is a big advantage to delaying the process: You can maximize your 2014 contributions to your IRA.
  7. Retirement

    Best IRA Accounts For Beginners

    Opening your first IRA should be just an early step in your ongoing financial education, for the more help you need, the higher fees you're likely to pay.
  8. Retirement

    How (And Why) To Open an IRA Now

    Take these simple steps to set up an Individual Retirement Account that will save you tax money and set you up for the future.
  9. Professionals

    Tips for Gen X Savers at Age 50

    This is the time to stop and take a careful assessment of where Gen X savers are and see what changes they need to make to achieve their financial goals.
  10. Investing

    Rethinking About Retirement Investing?

    There are plenty of reasons to rethink your retirement investing, wherever you fall on the spectrum between fatalistic acceptance and cheerful confidence.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center