Five-year averaging can be used only for distributions from company or Keogh pension, profit sharing or stock bonus plans, not for payouts from IRAs.

FORBES: The Five-Year Itch

Remember, from the middle 1980s to the early 1990s, many companies replaced restricted-stock and long-term performance bonus plans with stock options in the belief that they were a better way to link shareholder and executive interests.

FORBES: How To Salvage Stock Options

It is looking at cash-based incentive schemes or phantom option plans, which tie the cash bonus to the stock's performance.

FORBES: Capitalism is contagious

The penalty is part of a new section of the tax code clamping down on salary and bonus deferrals, executive retirement and benefit plans, severance packages, discounted stock options and even stock appreciation rights.

FORBES: Strings Attached