Defined Benefit plan

The cash balance defined benefit plan where I work is closing and I am going to receive a lump sum distribution next month.

Can I rollover this distribution to a Roth IRA?



Yes, you could do a direct rollover (called a qualified rollover contribution) to your Roth IRA. However, the tax rate you will pay could be increased if the value of this plan is considerable. In that case you would want to control the tax bill in one of two ways. First, you could do the direct rollover to a TIRA and then convert controlled amounts over time from your TIRA to your Roth. Or the plan may allow you to split your direct rollovers sending one amount to your Roth IRA and the rest to your TIRA.



My wife and I are over 591/2 and in the same situation.  We purchased Ed Slott’s retirement road map and have watched the pertinent videos.  From what we understand we can do a direct rollover from both of our qualifed accounts to a ROTH IRA, hold it untouched for five years and never pay any income tax or penalty when we start withdrawals.  Is Mr. Slott’s company dispensing incorrect information?   All of our contributions to our plans were pre-tax.



The direct rollover to a Roth IRA will be taxable. You could then take tax and penalty free distributions if you needed to starting from Day 1, but the earnings on the Roth IRA will not become tax free until 5 years are up. Therefore, you would probably be better off if you want to convert to a Roth IRA by doing a direct rollover to a traditional IRA (not taxable), and then converting incremental amounts in order to keep your tax rate on the conversions down. You also need to do an analysis to determine if conversions are a good idea at all. You would normally convert only at a rate that is lower than or perhaps equal to your estimated tax rate in retirement if you do not convert. It sounds like you may not have realized that rollovers to a Roth IRA are taxable if done with pre tax dollars.



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