Keogh Rollover to IRA ruled non permissible

Submitted by Toby Hartley on Mon, 2016-12-05 21:47

Dr stops working with Kaiser. Had a small Keogh that he then proceeds to roll to an IRA. Receives a notice this month that the distributions taken back in March were non permissible under the plan and to return the funds. He’s only young 50’s. The letter goes on to give rules about prior to 1/1/16 even though its obvious the rollover took place in March. Is separation from service not an option with a Keogh and why did they let the funds go if not permissible?



Submitted by Alan - IRA critic on Mon, 2016-12-05 22:23

  • I am not familiar with this situation. However, I came upon this article regarding plans that had to be amended and were not. Does the letter refer to any such issues with his plan?:   http://www.pension-specialists.com/hottopics/BeAware.pdf
  • What does the letter ask him to do, consider the IRA rollover as an excess IRA contribution, remove it and return the money? Certainly sounds like the plan missed the boat also if a plan was not amended and they did not know it until after the direct rollover.


Submitted by Alan - IRA critic on Mon, 2016-12-05 23:26

Thanks for the link. The implications of the disallowed rollover are standard operating procedures, but it is still not clear why the rollover was disallowed. As you indicated, the rollover was done after 1/1/2016 therefore another letter is needed to explain the implications of the rollover being done after that date. The current letter seems to imply that separation from service does not entitle the participant to distribution by itself. This is the part that is new to me, but otherwise the letter seems to make sense.  Perhaps Schwab could provide a thorough explanation of the rules they think apply here. I would certainly take no action until it is firmly established that balance was not rollover eligible, but the plan controls the situation through the 1099R process. They do not plan to provide direct rollover coding on the 1099R.



Submitted by Toby Hartley on Wed, 2016-12-14 23:23

Alan,Just an update.  I spoke with the company today and they stated that they were in the midst of adopting new guidelines as of 1-1-16 allowing the Keogh to have more flexibility like their employee plan has such as portability at separation of service.  However after review they were told they had to also include their pension plan in the nondiscriminatory assessment.  Because they had to include the pension, they could not allow physicians to do something under the Keogh that they didn’t allow the pension participants.  At the time of the request for transfer, they were working under the proposed rules and let the funds go.  However, since the review by the IRS, they had to revert back to last years rules and have requested funds back from those in question.  Just thought you’d like to know why the letter mentioned last year when distribution was made this year.Thanks again as always.



Add new comment

Log in or register to post comments