Transfer from Company Profit Sharing Plan to an IRA
I have a client who is 55 years old already and retiring in January 2009 from a Company she worked for 35 years. The Company has provided a Profit Sharing Plan for her where she has accummulated $700,000 in her plan. She wants, to take some cash now (say $100,000) which is all taxable, but, no 10% penalty and then do trustee to trustee transfer on the balance of $600,000 to a new IRA(s) (actually to 3 different Insurance Co’s) with different time frames and objectives.
She shouldn’t have any problem doing this, should she?
Permalink Submitted by Alan Spross on Fri, 2008-12-05 02:29
The only potential problem here might be a limit on the # of direct rollovers offered by the plan. They are only required to offer one.
Copy of 1.401a(31) Q&A 10:
Q–10: Must the plan administrator allow a distributee to divide an eligible rollover distribution into two or more separate distributions to be paid in direct rollovers to two or more eligible retirement plans?
A–10: No. The plan administrator is not required (but is permitted) to allow the distributee to divide an eligible rollover distribution into separate distributions to be paid to two or more eligible retirement plans in direct rollovers. Thus, the plan administrator may require that the distributee select a single eligible retirement plan to which the eligible rollover distribution (or portion thereof) will be distributed in a direct rollover.
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Permalink Submitted by Denise Appleby on Fri, 2008-12-05 05:19
Bear in mind that the plan will be required to withhold 20% for federal tax from the $100,000 (unless it is not rollover-eligible), plus any applicable state taxes-[i] if they perform state-tax withholding[/i]. If she does not want to have taxes withheld, she should rollover the entire balance to her IRA, take the distribution from the IRA and elect to have no taxes withheld.
If the plan limits rollovers to one account, she can rollover the amount to one IRA and then transfer the desired amounts to her other IRAs.
Permalink Submitted by Al Fry on Fri, 2008-12-05 19:10
Keep age in mind-55.