ROLLOVERS
PERMITTED ROLLOVERS UNDER THE TAX RULES
 Click here to view the Permitted Rollovers PDF Document
ROLLOVER/LUMP SUM DISTRIBUTIONS
Options available for a distribution from a company plan
- Rollover to an IRA
- Lump sum distribution
- Move it to the new employer’s plan
- Leave it in the current plan
- New for 2010 – All non-spouse employer plan beneficiaries can do a direct transfer to an inherited IRA or inherited Roth IRA.
Reasons to do a rollover to an IRA:
You don’t need the money now
Ability to create a stretch IRA for beneficiaries
Note: As of 2010, all non-spouse employer plan beneficiaries can do a direct transfer to an inherited IRA or inherited Roth IRA
Estate planning with an IRA is easier
Wider choice of investment options
Ability to convert to a Roth IRA
Ability to invest in an annuity
ROLLOVER/LUMP SUM DISTRIBUTIONS no withdrawal restrictions (after age 59 ½)
Ability to consolidate accounts
No taxes due on rollover if done via a trustee-to-trustee (direct) transfer
Tax bracket will be lower in retirement when taxes will be due on withdrawals
Access to professional advice (IRA funds can be placed with a manager who is working for the account owner)
Creditor protection (The Bankruptcy Reform Act passed by Congress in 2005 gives IRAs widespread protections when federal bankruptcy rules are used)
ROLLOVER/LUMP SUM DISTRIBUTIONS
How to do a Rollover
Trustee-to-trustee transfer (preferred method)
Unlimited number of transfers per year
Exempt from 20% withholding
Client has no opportunity to use tax deferred funds
60 day rule
Distribution of funds is made payable to client
Client has 60 days from the receipt of funds to contribute them to an IRA or company plan
ROLLOVER/LUMP SUM DISTRIBUTIONS When distributed from company plan, subject to 20% withholding (this amount can be rolled over but client must pay it out of pocket)
Funds not deposited within 60 days are considered income and are subject to tax (IRS now has the power to grant relief and allow completion of the rollover after the 60 days under “special circumstances”)
For IRAs only - one rollover per year per account
Roth conversions – 60 day rule applies, one per year rule does not apply
60 day IRA loans – funds are removed from the IRA for personal use and returned within 60 days. (IRS is reluctant to grant relief if the funds are not returned on time)
Are the funds eligible for rollover?
RMDs – no (For 2009 RMDs were suspended. Amounts that would have been an RMD are eligible for rollover.)
Distributions that are part of a substantially equal payment plan (paid over 10 years or more or over life expectancy) – no
Hardship distributions – no
Distributions to non-spouse beneficiaries, including conversions to inherited Roth IRAs – no
Note: As of 2010, all non-spouse employer plan beneficiaries can do a direct transfer to an inherited IRA or inherited Roth IRA.
Are after tax funds eligible for rollover?
To an IRA – yes
ROLLOVER/LUMP SUM DISTRIBUTIONS Between the same types of plans – yes, if the plan documents allow, must be a direct transfer
Between different types of plans – yes, if the plan documents allow, must be a direct transfer
The rollover must be of the same property received, i.e. you receive cash, you must roll over cash, you receive ABC stock, you must roll over ABC stock, except for a distribution from a company plan where you can sell the asset received and roll over the cash from the sale
Funds cannot be transferred between plans of different countries
Example: assets in a Canadian plan cannot be rolled over to a US plan
ROLLOVER/LUMP SUM DISTRIBUTIONS The lump sum distribution
Reasons to do a lump sum distribution
You need the money now
You qualify for tax breaks on the distribution (10 year averaging, NUA – see separate modules for those items)
Tax bracket is lower now than it will be in retirement
No future taxes due (they are paid at the time of distribution)
Source of liquidity for estate planning
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