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Significant sums of money are being accumulated on a taxed deferred basis in 401-K retirement accounts. Those individuals with large amounts of money in these thrift accounts generally must decide whether to take a lump sum distribution upon retirement and pay taxes on a five year or ten year averaging basis or roll the distribution over into an Individual Retirement Account (IRA). A person born before January 1, 1936 can choose between five year and ten year averaging methods; while a person born later cannot use the ten year average method. Five year or ten year averaging can only be used one time.

Another tax option that is available for 401-K distributions is to use no special rules and simply pay the tax at the ordinary tax rate. For the year 1988 the top tax rate would be the 33% rate.

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