Qualified Plan Rollovers

Combining and rolling over various retirement accounts is a decision that many individuals will face during their working career and in retirement. For individuals that are already retired, they may consider combining accounts to make required minimum distributions a bit easier (less paperwork, companies to deal with, etc.). Individuals that are still working may consider combining accounts as they switch jobs in an effort to consolidate plans from various employers to their IRA, Roth IRA or current employer plan. What follows are some considerations as well as a handy guide form the IRS regarding what rollovers and consolidations are allowed and specifics for each plan type.

1. Be sure to check the fees of the plan you’re coming from to the plan you’re considering moving to. While consolidation may make sense, it may be a bad idea if the expenses of the plan and funds are higher in the plan you’re moving to. For example, if a former employee’s 401k is invested in funds that have relatively low expenses and fees, she may be better off staying put if their current employer’s plan doesn’t offer such low cost options. The same is true regarding their current IRA. However, this can easily be remedied. She can simply open a new IRA with a low-cost provider such as Vanguard and combine the monies to that account when applicable.

2. Check to see if the plan you’re rolling into or out of allows rollovers (they generally do). However, some plans require special considerations. For example, the 457b allows rollovers from other plans, but requires separate accounts for the money being rolled in (if other than another 457b plan). Additionally, SIMPLE IRAs require the account be established for at least 2 years before any transfers out are allowed – regardless of employment status.

3. Be cognizant of the tax implications of your rollovers. While many plans allow rollovers and consolidations, the individual needs to consider the tax implications. For example, if an employee wanted to roll their pre-tax 401k to a Roth IRA they are certainly allowed to do so. However, they will pay tax on this “conversion” since the money is moving from a tax deferred to a tax free account. Roth accounts on a 401k, 403b, or 457b also have required minimum distributions at age 70 ½. This can be avoided by rolling the money to a Roth IRA.

4. Finally, here’s the handy chart courtesy of the IRS. This gives some general guidelines and should be able to help with many of our reader’s questions regarding what retirement accounts can be rolled where. For more specific questions, feel free to contacts us.