Are you a legacy American Airlines pilot? Did you receive a retirement payout in 2013 and 2014 as part of American’s reorganization? New tax legislation was recently passed that allows you to rollover up to 90% of those distributions to a tax free retirement account. This may allow you to amend your 2013 and 2014 individual tax returns and save significant money on taxes paid in those years. However you must act fast! The deadline to rollover accounts is June 15, 2016.
How did this happen? American Airlines filed for Chapter 11 bankruptcy protection on November 29, 2011. As part of the bankruptcy proceedings, the court froze the A plan pensions of roughly 130,000 employees and retirees. As part of the bankruptcy negotiations, the bankruptcy court agreed to allow employees to receive a payout of part of the Plan A pension plan. In 2013 and 2014, American Airlines paid out part of the pension plan to employees. The amounts were distributed as shares in American Airlines, included on the 2013 & 2014 W-2s, and taxed as regular income. Employees were not given the opportunity to rollover these pension payouts to another qualified retirement plan. American Airlines successfully lobbied Congress and the recent tax legislation allows affected employees to rollover up to 90% of those distributions to another qualified retirement plan (e.g. an Individual Retirement Account IRA), provided that they do so by June 15, 2016.
What to do now? Determine your eligibility. If this is available to you, fund your qualified retirement account by the June 15, 2016 deadline. American Airlines sent a letter on February 11, 2016 to all the affected employees detailing the legislation change along with the distribution amounts you received (page 2). Up to ninety percent of those distributions are eligible for rollover (e.g. an employee that received a $100,000 distribution can roll over up to $90,000). Individuals must have the cash available to fund their qualified retirement plan (any amount up to the 90% limit is authorized). Once the rollover to the qualified retirement plan has occurred, the 2013 and 2014 returns can be amended, and those funds excluded from income. In most cases this will significantly reduce the tax paid in those years. The amended returns don’t have to be filed by 6/15/16, but should be completed as soon as possible to expedite the refund process. If the February 11, 2016 letter has been misplaced, another copy can be obtained by calling 888-285-9438 or emailing email@example.com.
United Airlines and Delta Airlines employees that received similar payouts under their bankruptcy plans may be eligible for similar rollovers. Potential tax savings depend on your specific situation, but in most cases may be between 15%-50% of the amount rolled over.
As always contact your tax professional for information on your specific situation. If you have any questions on eligibility, rollover amounts, specific strategies to fund your accounts, or help amending prior year’s returns, please feel free to give us a call.