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Marc A. Hebert's Money Sense: Options for rolling over your employer retirement plan assets

By MARC A. HEBERT
December 23. 2017 4:39PM
 (Dreamstime/TNS)



Have you recently left your job? If so, you might need to decide what to do with your employer-sponsored retirement plan account, such as a 401(k) or 403(b). Here are some paths to consider:

One of your options might be to roll over the funds to another retirement account. There are two types of rollovers: direct and indirect. With a direct rollover, the funds are paid from your plan directly to your IRA or new employer's retirement plan. The funds aren't payable to you. With an indirect rollover, the payment is made to you and you must later deposit the funds into an IRA or another employer retirement plan.

If you would like to roll the funds to your new employer's plan, make sure to review your existing plan's distribution form for instructions on completing a direct rollover to another employer retirement plan. You will need to ask the new plan's administrator if he or she accepts a rollover and how to accomplish this. Your old plan administrator will either transfer the funds directly to your new plan or provide you with a check payable to the new plan for deposit into the account.

Instead of rolling the funds to a new employer plan, you might want to roll them into an IRA. The process to do so starts out pretty much the same. Review your existing plan's distribution form for instructions on how to complete a direct rollover into an IRA. You can use your existing IRA account or set up a new IRA account at the financial institution of your choice. Your plan administrator will need the IRA account information to process the rollover. The funds can be transferred directly or you might be provided a check made payable to your IRA for deposit into the account.

It should be noted that you don't have to set up a special "rollover" IRA account. However, in some cases it might be helpful to do so, such as when you might want to roll the taxable portion of your distribution back to an employer plan at a future date or if you are concerned about protection from creditors. Funds rolled over from an employer plan and their earnings generally receive unlimited protection under federal law if you declare bankruptcy.

Your third option is to do a 60-day indirect rollover. In this case, your plan administrator will make the distribution to you by issuing a check in your name or wiring the funds into your bank account. You can use an existing IRA account or set up a new account at the financial institution of your choice. You might also be able to deposit the funds into a new employer's plan. You'll need to contact the plan administrator to ask what he or she needs to accept the rollover. You will need to complete the process by depositing the funds into the account by the 60th day after the day you receive the distribution from your plan.

Be cautious of the 60-day rollover. Your plan is required to withhold 20 percent of the taxable portion of your payment for federal income taxes. If you want to roll the entire amount, you will need to find the funds elsewhere to cover the 20 percent withholding. With this type of rollover, you also risk missing the 60-day deadline. Doing so makes your entire distribution taxable.

Rollovers are not allowed in the case of hardship withdrawals, required minimum distributions, substantially equal period payments, corrective distributions, and certain other payments. Nonspousal death benefits can be rolled over only to an inherited IRA and by direct rollover using a trustee-to-trustee transfer.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.


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