Conversion of Profit sharing plans to traditional IRS’s
At the present time I have three (3) pension plans.
One is called Construction PS
Second is called……. associates SERP
Third is called Profit sharing plan.
I am now 73 years old and I have taken two RMD’s
I would like to convert them to IRA’s and also to stretch IRA’s
My question:…. Is this a simple proceedure and all done the same way or do the titles of these plans cause a problem?
I have been filing 5500 forms for each of these plans for many years.
I became a aware of the advantage of IRA’s through your program on PBS.
I have some of your books and dvd from the programs, However, I want to be sure I do the conversion correctly to satisfy the IRS.
Also, how is the IRS informed of the conversiion so I do not need to file 5500’s in the future.
Thank you in advance for your help.
Permalink Submitted by mk foss on Wed, 2010-12-29 23:59
You should contact the plan administrator or custodian of each plan and tell them that you wish to terminate the plan and roll the proceeds over to an IRA. You will need to open an IRA to receive the funds or you can have the funds transferred to an exisiting IRA. If the rollovr IRa is at the same institution holding the profit sharing plans,the assets may be able to be transferred in kind to the new IRA. Once the profit sharing plans are closed – it may take until 2011 to get everything transferred – you file a final Form 5500 for each plan.
Permalink Submitted by Martin Helmer on Thu, 2010-12-30 00:18
Converting the 3 plans to one or more IRAs optimistically can be a simple procedure. It sounds like these are 1 person plans. You basically would ‘terminate’ the plans, ending with a rollover to the IRA for each plan after it has satisfied the required distribution amount for the year. You’d need a writing that proposes to terminate the plan. You’d probably need to sign amendments for each plan to satisfy technical requirements. You’d elect a rollover as the form of distribution. Spousal consent might be required for that. You have the option to request a ‘determination letter’ from IRS by sending in a fee with a Form 5310 application. The Form 5310 process frequently sets back distributing the funds for the better part of a year. Whether or not to go through this application process depends on various factors such as how much money is involved and how well the plan has been maintained over the years.
The final Form 5500 series return for each plan is due 7 months from the end of the month when the plan terminates in the final sese of the word, which is usually at the point the last dollar has left the plan, and the plan has no receivables or payables. So if you terminate a calendar year plan on February 3, the final return for the short 2011 plan year is due September 30. You’d still have to have the 2010 return filed by July 31. The final return has multiple ‘boxes checked’——-it’s the final return and it’s a partial year return. At the end of the year there are 0 people in the plan. This will inform IRS that there’s no need for a 5500 going forward.
So the above is kind of the nutshell of it. There could be glitches. You didn’t say whether you’re still working. We’re not sure if the 3rd plan is a money purchase plan. If you’re not working, you do need to move on doing the plan terminations. If you’re working and one or more of the plans is a ‘pension’ in the more specialized sense, then you might have a minimum funding requirement (must contribute to the plan for 2010) unless you’re able to stop it by putting something in writing by tomorrow to freeze the contribution.
If required amendments over the years haven’t been kept up with, the plans’ qualified status might have been affected. In such a case, the funds would not be eligible for rollover until you go through a correction process with IRS.