Upon terminating employment, Kim requested the 401(k) plan trustee to distribute the entire accrued benefit...

Definition of a direct rollover.

A direct rollover occurs when retirement funds are transferred directly from one trustee to another without the participant taking possession.

Apply the facts.

The check is payable to the IRA custodian, not to Kim.

Kim never has constructive receipt of the funds.

Evaluate each option.

A. Excise tax

Not applicable to a direct rollover.

B. Mandatory withholding

Does not apply to direct rollovers.

C. Section 1035 exchange

Applies to insurance and annuities, not qualified plans.

D. Direct rollover

Correct under IRS rules.

Conclusion.

This transaction is treated as a direct rollover.