Senior Tax Specialist Practice Test

The distribution eligible for rollover treatment is one made from a qualified plan to a surviving spouse. This type of distribution allows the surviving spouse to transfer the funds into an individual retirement account (IRA) or another qualified plan, preserving the tax-deferred status of the funds.

Rollovers are beneficial because they allow individuals to avoid immediate taxation on the distribution, which can significantly impact their financial situation if they are required to report it as income. By rolling over the funds, the surviving spouse can continue to grow the savings tax-deferred until they decide to withdraw from the account, providing more flexibility and control over their retirement funds.

In contrast, required minimum distributions and hardship distributions do not qualify for rollover treatment. Required minimum distributions are mandated withdrawals that must be taken from retirement accounts upon reaching a certain age, and these amounts cannot be rolled over. Hardship distributions, though often necessary to meet immediate financial needs, are also not eligible for rollover because they are intended to address urgent situations rather than serve as a long-term investment strategy. A distribution of excess deferrals made to a highly-compensated employee is similarly not eligible for rollover, as it represents an amount that has exceeded contribution limits and must be withdrawn.