ROLLOVERS FROM PENSION PLANS OR IRAs

Individuals changing jobs may have substantial pension balances that need to be dealt with.  Often, they want to defer taxes on the pension plan balances, and transfer the money to another plan over which they have more control.

Others with IRA balances may be interested in making a tax-free transfer to a new IRA custodian, or in splitting the current IRA account for various reasons.

Tax free transfers might be made by trustee-to-trustee transfer, direct rollover or 60-day rollover. 

We have found that in thinking about transfers, clients want to know:

• Does the account they’re starting with qualify for a tax free transfer to another qualified account?
• Is the vehicle into which they intend to transfer a qualified plan balance one that can accept a tax free transfer?
• What administrative procedures need to be followed to accomplish the transfer?
• What special considerations need to be evaluated to help determine whether the proposed transfer makes economic and tax sense?

Eligible rollover distributions from the following plans are eligible for tax-free transfers:

• IRAs
• Qualified pension plans
• Tax-sheltered annuities (403(b) plans)
• Governmental 457(b) plans
• A 403(a) annuity

Rollover distributions can generally be transferred to a traditional IRA or pension plan on a tax-free basis —if the pension plan will accept them—.

Distributions that might otherwise qualify for a tax-free rollover might be defeated by one or more of the following complications:

• The 20% mandatory withholding on distributions from pension plans may make it difficult for the participant to accomplish a complete rollover of a taxable distribution.
• The pre-requisite within a pension plan of a triggering event prior to the distribution of a pension balance may mean that a distribution is not allowed at all.
• The fact that the source of funds intended for rollover is from a beneficiary account rather than the participant’s own IRA may mean rollover is not allowed.
• Multiple IRA rollovers in the same 12-month period may be disallowed by IRS rules.

When done properly, rollovers offer the opportunity to continue tax-deferred growth on retirement assets.  If done improperly, an attempted rollover may result in a large unexpected income tax result, and cause you to be liable for an extra 10% penalty tax. 

NOTE:  These rollovers exclude the conversions to a Roth IRA, which would be taxable

I hope this information is helpful.

Please contact the Law Offices of William H. Copperthwaite Jr., L.L.C. if you have any questions.

Please note that the information contained in this summary is intended for informational purposes only and is not to be considered tax/legal advice. For specific advice, please contact the Law Offices of William H. Copperthwaite Jr., L.L.C.