by Donn J. Sinclair, MBA May 14, 2022
Your retirement plans should be both tax-favored retirement assets which should be portable. You may normally easily move these assets to your new company retirement plan or Traditional IRA Rollover. You should be able to do a direct transfer from one trustee to another; a direct or indirect IRA Rollover; or transfers incident to a divorce. You may also want to consider how you may even be able to move these retirement plan assets to your Roth IRA.
You should be able to move your funds directly from one like-type account to another with a Trustee-to-Trustee Transfer. An example is from a former 401(k) to your new 401(k). You normally can also move Traditional IRA funds via a Trustee-to-Trustee Transfer from one IRA to another like-kind IRA. These are some of the most convenient ways to move funds between IRAs and other retirement accounts. Your current trustee may actually send you the check; however, in this case the check is normally payable to your new trustee for your benefit. Upon receipt you then should forward that check to your new trustee.
IRA Rollovers are tax-free distributions to you normally from non-like retirement accounts. For example from your 401(k) or 403(b). The check may be sent to you, or sent directly to your chosen retirement plan. Chosen retirement plans include: IRA Rollovers, your current employer’s qualified retirement plan; a state or local government’s deferred compensation plan, or a tax-shelters 403(b) annuity plan.
Some rollover limitations include that you normally may only make one tax free indirect IRA Rollover in any 1-year period. This restriction will apply no matter how many IRAs you own. Direct IRA Rollovers are normally exempt from this limitation. A direct IRA Rollover sends the funds directly from one custodian to your new custodian. Also note that you must complete any indirect IRA Rollover within 60 days from when the funds left your former trustee. That is, they should arrive at your new trustee within the 60 day rollover period.
Example: Anna recently left her Charlotte NC job for a shorter commute with an employer in Rock Hill SC. She is going to grad school at Winthrop University and wanted a shorter commute from her Rock Hill SC home. Anna had worked at the Charlotte firm for five years and had saved over thirty thousand dollars in her former employer’s 401(k) program. Anna has decided rather than leave her funds at the old 401(k), or move them to the 401(k) at her new employer, she will start an IRA Rollover. Anna plans to do a direct rollover and have her funds sent directly from her old 401(k) to her new IRA Rollover. This should be a non-taxable event, and there will be no taxes withheld from her old 401(k) distribution in the direct rollover to her new IRA Rollover. The check will be payable to her new IRA rollover and mailed to Anna. She will still need to forward the check to her new IRA Rollover. The rollover check is made to her new IRA Rollover, and therefore this is still a direct rollover. My granddaughters would say, “ Easy peasy lemon squeezy”!
Donn J. Sinclair
Updated in Charlotte NC and Rock Hill SC
May 14, 2022 (803)329-0609
DJS: More information is available at IRS.gov
See Publication 590-A and Publication 590-B.