Profit sharing plan?

Submitted by steve heller on Sun, 2008-06-08 16:23

I don’t have an IRA, and I’m going to roll my 401K balance into my company profit sharing plan. Would Ed’s advice still be helpful for me?

Thanks.



Submitted by Alan Spross on Mon, 2008-06-09 00:13

Please be more specific on the nature of that advice.



Submitted by steve heller on Mon, 2008-06-09 01:09

Advice with respect to minimizing taxes. I don’t think I’ll have enough to worry about estate taxes, but I suppose I could have other tax issues with my profit sharing plan payout. At present I expect to take that payout as an annuity.



Submitted by Alan Spross on Mon, 2008-06-09 04:26

These assets are all tax deferred, and whether paid out as RMDs or additional distributions as you need them, or as an annuity, you will owe ordinary income tax as the funds are distributed. You should avoid distributing too much in any single tax year or you will increase the tax rate you pay for that year. After you retire, you should transfer the funds to an IRA.

The unified credit for estate taxes goes to 3,500,000 next January and Congress will probably pass legislation within the next couple years that will likely continue the exclusion at this level or somewhat higher.

It is probably not a good idea to have all your retirement assets annuitized, as it will leave you with limited flexibility. Social Security is also paid out as an annuity, except is has a cost of living adjustment that falls far short of dealing with inflation.



Submitted by steve heller on Mon, 2008-06-09 04:30

I understand that distributing an annuity from my profit sharing plan to myself does not cause any immediate tax consequences, until I start to receive payments from the annuity. Is this correct?



Submitted by Al Fry on Mon, 2008-06-09 14:11

Correct, as long as it is in an IRA, or meets the requirements of a “Plan Distributed Annuity” (Non-Transferable and contains RMD requirements).



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