Roll over to an IRA?


P

po.ning

Would it be the general advice here that once a person retires, he/she
should roll the 401K into a roll over IRA account for financial
planning purposes? Would the advice be different if it's a 403B or 457
account?
 
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E

Elizabeth Richardson

Would it be the general advice here that once a person retires, he/she
should roll the 401K into a roll over IRA account for financial
planning purposes? Would the advice be different if it's a 403B or 457
account?
Depends on your age at retirement and whether you have other sources of
income. 457 Plans have different distribution rules. You can take
distributions from a 457 at any age without penalty after you have separated
from service. This means that if you retire at 50 (or even younger), you
don't have to wait until you're 59-1/2. I believe the rule for 401k & 403b
is that if you're age 55 you can start taking distributions without penalty.
So, if you plan to retire before age 59-1/2, transferring your plan monies
to an IRA is, at best, a questionable course of action. The flip side of
this coin is that an IRA (usually) has greater flexibility, lower costs, and
more control to the owner.

Elizabeth Richardson
 
J

jIM

Elizabeth said:
Depends on your age at retirement and whether you have other sources of
income. 457 Plans have different distribution rules.
IRA's have "Required Minimum Distributions" (RMD). 401k's do not. If
you are over the age of 70 and do not want to withdraw the money, I
believe you could leave it in a 401k (IF the plan allows this while
retired). If same money is in an IRA, you would be forced to take the
RMD, which is a taxable event.
 
J

jIM

First thanks to both for replying. Let's say a person retires at 60
but don't need funds from IRA/401K/403B/457 plans to live on. So 401K
would be more flexible because there is no required distribution rule.
But what about leaving the funds to heirs? I understand that with an
IRA the heir can put it into his/her own IRA and thus would not incur
taxes. How is an 401K, etc. type plan in terms of leaving it for
heirs? Is it an immediate taxable event?
Check the 401k plan documents... each plan will be different. That is
best source (contact HR department or go to company web site).

A 401k has a beneficiary. If you are married and the beneficiary is
NOT your spouse, then there is additional paperwork.

I believe a 401k can be rolled over into a "deducatable rollover IRA/
traditional IRA" where gains grow tax exempt, where the assetts will be
taxed on withdraw, but no penalties are assessed on these withdraws.
 
D

Douglas Johnson

jIM said:
IRA's have "Required Minimum Distributions" (RMD). 401k's do not.
The IRS seems to have a different opinion:

http://www.irs.gov/retirement/sponsor/article/0,,id=151926,00.html

says:

"Required distributions. A 401(k) plan must provide that each participant will
either:

* Receive his or her entire interest (benefits) in the plan by the
required beginning date (defined below), or
* Begin receiving regular periodic distributions by the required
beginning date in annual amounts calculated to distribute the participant's
entire interest (benefits) over his or her life expectancy or over the joint
life expectancy of the participant and the designated beneficiary (or over a
shorter period)."

Later:

"The required beginning date is April 1 of the first year after the later of the
following years:

* Calendar year in which the participant reaches age 70½.
* Calendar year in which the participant retires.

However, a plan may require that the participant begin receiving distributions
by April 1 of the year after the participant reaches age 70½, even if the
participant has not retired."

-- Doug
 
J

jIM

"Required distributions. A 401(k) plan must provide that each participant will
either:

* Receive his or her entire interest (benefits) in the plan by the
required beginning date (defined below), or
* Begin receiving regular periodic distributions by the required
beginning date in annual amounts calculated to distribute the participant's
entire interest (benefits) over his or her life expectancy or over the joint
life expectancy of the participant and the designated beneficiary (or over a
shorter period)."

Later:

"The required beginning date is April 1 of the first year after the later of the
following years:

* Calendar year in which the participant reaches age 70½.
* Calendar year in which the participant retires.

However, a plan may require that the participant begin receiving distributions
by April 1 of the year after the participant reaches age 70½, even if the
participant has not retired."
I stand corrected, the only way to eave money in 401k plan is too keep
working after age 70 1/2... if one retires at any age after 70 1/2 and
has $$ in 401k, they need to begin RMD.
 
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M

Mark Freeland

Douglas Johnson said:
http://www.irs.gov/retirement/sponsor/article/0,,id=151926,00.html

says:

"Required distributions. A 401(k) plan must provide that each participant
will either:

* Receive his or her entire interest (benefits) in the plan by the
required beginning date (defined below), or
* Begin receiving regular periodic distributions by the required
beginning date in annual amounts calculated to distribute the
participant's entire interest (benefits) over his or her life expectancy
or
over the joint life expectancy of the participant and the designated
beneficiary (or over a shorter period)."
It's worth noting that this minimum distribution requirement is independent
of your traditional IRA requirement; you cannot combine the two and take a
single distribution for the total required amount.

IMHO, this complexity is one reason to roll over accounts into IRAs once
one reaches age 70.5 (assuming one is not working and so ineligible to defer
distributions from the 401(k)).

Nor, apparently, can you combine 401(k)s in most cases (I'm interested if
anyone can explain the TSA exception in Pub 575):
http://www.irs.gov/publications/p575/ar02.html#d0e4521


Mark Freeland
(e-mail address removed)
 

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