Broker Check

Nuts and Bolts: How to Roll Over Your Employer Retirement Plan Assets

August 04, 2020

Nuts and Bolts: How to Roll Over Your Employer Retirement Plan Assets

1. There are two major disadvantages to indirect rollovers. First, your plan is required to withhold 20% of the taxable portion of your payment for
federal income taxes. You’ll get credit for that amount when you file your federal income tax return, but if you want to roll over the entire distribution,
you’ll have to come up with the 20% that was withheld from other sources. Second, you run the risk of missing the 60-day deadline, which would
make your distribution taxable. On the plus side, you’ll have use of the funds for up to 60 days. In general, direct rollovers are the safer choice.

2. You cannot roll over hardship withdrawals, required minimum distributions, substantially equal periodic payments, corrective distributions, and
certain other payments. Nonspousal death benefits can be rolled over only to an inherited IRA, and only in a direct rollover or trustee-to-trustee
transfer. You may have the option of leaving your funds in your employer’s plan — consult your plan’s terms.

3.  You do not need to set up a special “Rollover IRA” account (sometimes called a “conduit IRA”) to receive your rollover, although some financial
firms may require that you do so at least initially. (You can always transfer the funds to a different IRA account later.) While not required, in some
cases a separate rollover IRA may be helpful if: (a) you think you may want to roll the taxable portion of your distribution back to an employer plan
at some future date, or (b) you’re concerned about protection from creditors, as funds rolled over from an employer plan (and any earnings on
those funds) generally receive unlimited protection under federal law if you declare bankruptcy.

4. The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. There are three ways to obtain a waiver of the 60-day rollover requirement:

(a) you qualify for an automatic waiver, (b) you self-certify that you met the requirements of a waiver, or (c) you request and receive a private letter ruling
granting a waiver. Consult a tax professional.

Note: If you receive employer stock or other securities as part of your distribution be sure to understand the tax consequences before making a
rollover to an IRA. Your distribution may be entitled to favorable net unrealized appreciation (NUA) tax rules. Consult a tax professional.