Roll over of Pension


A

Arinté

I used to work for IBM and I want to rollover my pension to my 401k.
Fortunately, I will be switching jobs again, but I won't be able to
open the 401k until the month after. So what I want to do is either
open an IRA or a ROTH IRA and stash the pension money in there until I
can roll it over to my new 401k.

You probably would ask why not wait until you get the new 401k. Well
we want to buy a house and I want to be able to tap that pension money
for the down payment. What is the best way to handle this?
 
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T

Tom Healy CPA

I used to work for IBM and I want to rollover my pension to my 401k.
Fortunately, I will be switching jobs again, but I won't be able to
open the 401k until the month after.  So what I want to do is either
open an IRA or a ROTH IRA and stash the pension money in there until I
can roll it over to my new 401k.

You probably would ask why not wait until you get the new 401k.  Well
we want to buy a house and I want to be able to tap that pension money
for the down payment.  What is the best way to handle this?
This type of IRA is called a "conduit IRA." It cannot contain any
other IRA funds. If your IBM 401(k) includes both Roth and traditional
balances, you roll each part into the corresponding IRA type.

Once the funds are in the IRA, you can then withdraw the funds and use
them for 60 days before you put the funds into a different conduit IRA
(it can't go into the same IRA). Note that you need to ask that no
federal tax be withheld; otherwise you'll need to replace those funds
from other sources. Finally, you roll the conduit IRA into the new
401(k). Note: if you miss the 60-day date, even if through no fault of
your own, the full amount becomes taxable, and subject to the 10%
penalty, except for the homebuyer rule. It's not a good source for the
down payment, because of the amount of tax you end up paying.
 
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P

Phil Marti

This type of IRA is called a "conduit IRA." It cannot contain any
other IRA funds.
The restrictions on conduit IRAs were repealed several years ago. See
Pub 590.

Phil Marti
VITA/TCE Volunteer
 

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