A distribution from an employer’s or self-employed individual’s qualified plan--profit-sharing, stock purchase, pension or 403(a) annuity plan;

The whole balance credited to the recipient, excluding voluntary deductible employee contributions;

Payment within one tax year of the recipient (incidental payouts after the close of the tax year are permitted, but will be taxed as ordinary income)., The entire payout does not need to occur in a specific year (e.g., the year the taxpayer retires), but it could take place years after a taxpayer’s separation from company service;

Payment must be made because the employee: (a) “separated from service” (i.e., a common law employee retired, quit, was fired, or laid off from a job), or (b) reached age 59-1/2, or (c) died, or (d) became disabled (applies to self-employed taxpayers only). “Separation from service” means complete severance from all relationships between an employee and employer.

An employee must have a minimum of five years of plan participation before the distribution (waived if paid to a deceased employee’s beneficiary).In Robert Boyer, TC Memo 1988-220,the Tax Court held that the 5year requirement didn’t mean 5 full years but “any part of at least 5 years.”