MMC Benefits Handbook
Taxes When Taking a Distribution
In general, the taxable money you receive from the Plan (including payments of dividends from the MMC Stock Fund) is subject to ordinary income taxes when received. If you made traditional after-tax contributions, that portion of a distribution representing a return of those contributions (exclusive of earnings) is non-taxable. Generally, the remainder of the distribution is taxable, including any investment earnings on after-tax contributions included in the distribution.
However, special tax treatment is available for a lump sum that includes Marsh & McLennan Companies stock.
If you have made Roth 401(k) and/or Roth catch-up contributions to the Plan, a qualified distribution from your Roth account is fully excludable from gross income. The same tax rule applies to in-plan Roth conversion accounts. To be a qualified distribution, (i) the distribution must be made after you reach age 59-1/2 or on account of disability or death AND (ii) your first Roth money must have been contributed to the Plan at least five (5) taxable years ago (whether through the Plan's Roth 401(k) feature or an in-plan Roth conversion of after-tax amounts).
You should read the IRS Special Tax Notice Regarding Plan Payments before making your distribution decision. It explains rollover rules, withholding rules and other important tax rules. You will receive this notice at the time you qualify for a distribution.
If your distribution is eligible for rollover to a traditional IRA, Roth IRA or another employer's tax-qualified plan, you may request a direct trustee-to-trustee rollover to that plan. Otherwise, the taxable portion of your distribution will be subject to mandatory 20% Federal income tax withholding and may be subject to other state and local taxes.
There is a special withholding exception for distributions made entirely in shares of Marsh & McLennan Companies stock: no tax will be withheld even if you choose not to roll the shares over and no shares of Marsh & McLennan Companies stock will be required to be sold to pay withholding. If your distribution is part shares of Marsh & McLennan Companies stock and part cash, and you choose not to roll it over, the 20% withholding will be determined on the taxable portion of the distribution (taking into account deferral of tax on unrealized appreciation) and taken only from the cash portion paid to you.
If you have made Roth 401(k) and/or Roth catch-up contributions to the Plan, your tax basis for qualified Roth 401(k) and/or Roth catch-up distributions that include Marsh & McLennan Companies Stock is the fair market value of the distributed shares at the time of the distribution. In the case of a non-qualified Roth 401(k) and/or Roth catch-up distribution that includes Marsh & McLennan Companies Stock, the net unrealized appreciation (NUA) is not included in the tax basis of the distributed shares and is treated as a capital gain to the extent realized in a later sale of the stock. The NUA is excludable from your income at the time of the distribution.
If your distribution is not eligible for rollover to a traditional IRA, Roth IRA or another employer's tax-qualified plan (e.g., if you take a hardship distribution), the distribution will be subject to voluntary Federal income tax withholding. If you do not make an election, 10% Federal income tax withholding will apply.
Taxable distributions may be subject to an additional 10% Federal early withdrawal tax unless you:
- receive the distribution after you reach age 59-1/2.
- leave the Company and all affiliated companies and receive the distribution on or after reaching age 55.
- use the distribution for a tax deductible medical expense.
- are totally and permanently disabled (as defined by the Internal Revenue Code).
- are an alternate payee and receive a distribution pursuant to a Qualified Domestic Relations Order (QDRO).
- are paid in substantially equal installments over your lifetime or over your and your Beneficiary's lifetimes.
- are a surviving spouse or other beneficiary.
As long as you maintain a balance in the Plan, you will need to let the Employee Service Center at +1 866 374 2662 know of address changes so that dividend payments and account statements are properly directed.
This is only a summary of current law and not personal tax advice. Tax laws change frequently. You should consult with a tax professional to find out exactly what taxes you will have to pay.