Plan to IRA questions
Can I merge two plans into one IRA? Would this be a ‘roll-over’ IRA or a ‘participant’ IRA? What are the differences? I think with a 401K roll-over to a Roll-over IRA, it is still possible to roll-over those funds back into a 401K. But if one rolls over 401K funds into a participant IRA, that means the funds stay permanently into an IRA (or Roth IRA). Is this correct? There is also a ‘pension’ account to roll-over – can we mix a ‘pension’ (no other description of this pension is on the statements) with the 401K funds into a participant IRA? I would think yes – but we probably don’t want to mix the pension funds with the 401K funds into a roll-over IRA – as since the 401K funds would be mixed with pension money, I believe that account could not be rolled-over to a 401K ever again. Do I have all this straight? Other considerations or suggestions on what to do with the pension money and the 401K money? Thanks!!!
Permalink Submitted by mk foss on Mon, 2012-10-22 23:17
You can roll 401k benefits into a separate rollover IRA or into an existing traditional IRA. Normally a pension is a stream of payments but if it is converted into a lump sum, it also can be rolled to its own IRA or combined with another rollover IRA or traditional IRA. IRA benefits can be rolled to a qualifed plan [b]if the plan allows it.[/b] A qualified plan cannot accept after tax money from an IRA, 401k or pension but if the plan accepts rollovers it will take all of the pre-tax contributions, employer match amounts and the earnings on it all.
Permalink Submitted by Alan Spross on Tue, 2012-10-23 04:28
If you are concerned with your ability to roll your IRA funds into a qualified retirement plan (eg 401k), you should avoid commingling your rollover IRAs with contributary IRAs. Some employer plans will not accept IRA rollovers, some will accept rollovers only from a rollover IRA, and some will accept them from all your IRAs. By keeping the rollover IRAs separate, you increase your chances by qualifying for the second category as well as the third.
There is no need to separate your defined benefit pension lump sum rollover from your 401k rollover. Both types of plans are considered to create a rollover IRA account if rolled into an IRA that has not received regular IRA contributions. You can therefore combine them, but do not combine them with a contributary account.
Before 2002, only a rollover IRA (aka conduit IRA) could be rolled into an employer plan. SInce 2002, an employer plan can accept incoming rollovers from IRAs of all types if they choose to. But they cannot accept non deductible IRA contribution money (Form 8606).
Keeping your rollover IRAs separate from contributary IRA accounts also provides you with better protection in bankruptcy in states where it is needed, eg states that do not have state laws that protect IRA accounts.