A one-time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment.
A commission check or a pension plan distribution because of the pensioner’s death are two examples of lump-sum distributions.
Explained further: In general, distributions from qualified plans are treated as lump sum, if the following requirements are met:
1. The total plan balance is distributed over the same tax year.
2. The distribution is made as a result of the employee:
– attaining age 59.5
– being deceased (applicable to beneficiaries)
– separating from service (not applicable to self-employed individuals – but applies to their common-law employees) or
– being disabled (applicable only to self-employed individuals).
3. The distribution occurs after five years of participation (this requirements is waived for beneficiaries).
Definition courtesy of Investopedia