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Looking at 401 rollover accounts

October 30, 2010

As we had suggested and requested,? ?when we first began this series of?

monthly Personal Finance? ?101? ?articles,? ?we wanted to open and base them?

on any financial questions ?"?whether they be on investing,? ?banking,?

retirement,? ?loan searching,? ?college funding for children,

reverse mortgages,? ?refinancing your current mortgage,? ?tax issues,? ?and?

employer provided benefits,? ?etc.? ?or anything else that has,? ?as its?

basis,? ?a need for anything pertaining to questions about your own?

personal finance.

We would also open this series to small businessmen and employers?

since,? ?in many cases,? ?such small businesses usually begin their?

operations as sole proprietors,? ?wherein most of their business revenues?

and expenses would be taxed as those of a private individual.? ?In both?

cases,? ?there are,? ?most of the time,? ?distinctly common rules and?

regulations that would apply to both

individuals and sole proprietors.

For this "101"? ?article,? ?we want to focus on employees who leave one?

employer to move to another.? ?The employee's first question might be?

"What is an IRA Rollover account,? ?while their second question should?

be:? "?What can I do,? ?or what should I do,? ?about my retirement plan that?

Ileft at my previous employer?"

To begin with,? ?an IRA Rollover account is an account designed to?

receive distributions from another qualified plan? (?that could be from a?

401k,? ?403b are? ?457? ?deferred compensation plan?)?,? ?which keeps the?

tax-free status of those retirement plan assets still tax free.? ?That?

employee may have access to those assets if that company's plan was?

discontinued?; ?if the employee left that company to move to another one?;

or if that employee may have,? ?otherwise,? ?left that company.? ?From that?

point on,? ?the employee could manage his own retirement assets or,?

otherwise,? ?roll those assets into their new company's plan,? ?if one is?


Once an employee leaves a company where his or her retirement plan assets?

were held,? ?that employee then has several options to choose from.? ?They?

can take a full or partial distribution from their employer-sponsored?

plan.? ?If they do,? ?their former employer,? ?currently,? ?must withhold? ?20?

percent of that distribution to pay toward any taxes that may be owed?

on that distribution.? ?Or,? ?if they decide to deposit all or any part of?

that distribution to an IRA Rollover account,? ?they must do so before?

the current? ?60-day time limit to deposit those funds expires.? ?If they?

try to make that deposit to an IRA Rollover account after the? ?60-day?

limit has expired,? ?they would then be taxed for the full amount of that?

distribution,? ?plus any early-withdrawal penalties that could also be?


Statistically,? ?the larger number of employees who have,? ?otherwise,? ?left?

Company A,? ?would usually elect a trustee-to-trustee transfer of their?

retirement plan assets to their newly-established IRA Rollover?

account's trustee with this type of transfer.? ?By electing a direct?

trustee-to-trustee transfer of their retirement plan assets,? ?the?

employee has ensured that no taxation would be assessed on any of those?

assets,? ?while eliminating any need for their previous employer to?

withhold? ?20? ?percent for any possible taxes since no assets from the old?

plan were ever given to that employee.

From that point on,? ?the employee working with their new IRA Rollover?

trustee can invest and manage their retirement plan assets?; ?or?

transfer those assets to the new employer's retirement plan?; ?or?

actually retire and then use those assets to fund a retirement income?


The point here is that the employee now has control over his or her?

retirement assets.? ?As always,please be sure to contact an individual or firm that already has the trustee-status required to accept and properly service a?

trustee-to-trustee transfer of your qualified retirement plan assets to?

an IRA Rollover account.? ?That person or firm should also be one that is?

well-qualified to offer the assistance,? ?guidance,? ?and advice anyone?

might need to properly manage their retirement assets.? ?Good luck.? ?? ?

Paul Rendine is a financial adviser with more than? ?33? ?years of?

experience in that field.? ?He can be contacted though his e-mail address?

at quoteman3?@?aol,com with any comments or questions.



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