Tax Treatment of Distributions The following information is only meant to give you a general idea about taxes. Tax laws are complex and often change; therefore, you should consult a qualified tax advisor or specialist to help you decide the best approach for your situation. Taxation of Distributions. Under current law, you defer paying federal income taxes on all contributions to the Plan until your Account balance is distributed. Investment earnings accumulating in the Plan also avoid taxation until they are paid out to you. All distributions from the Plan are subject to income taxes, and regulations require that federal income tax be withheld at 20%, unless you directly roll over your distribution to another qualified plan, 403(b) tax-sheltered annuity, governmental Section 457 Plan or IRA. Taxes are to be paid in the year of the distribution. Hardship withdrawals are not subject to 20% mandatory withholding because they are not eligible to be rolled over to another plan or IRA; in addition, a 10% early distribution penalty applies to hardship withdrawals (this 10% penalty is explained below). You may be eligible to transfer your distribution directly to an IRA. You may also directly transfer your Account to another retirement plan, provided such plan permits the transfer. Such transfers may be accomplished without being subject to income taxes until you receive a distribution from the other employer's qualified plan, Section 403(b) tax-sheltered annuity, governmental Section 457 Plan or IRA. The Plan Administrator will provide more details concerning your options when you apply for your distribution. Before a distribution is made, you will be asked to certify your election in writing. Because the tax laws are complicated and are subject to change, we recommend that you obtain tax advice before taking any distribution.