IRAs

Submitted by Jason Hochstadt on Fri, 2016-12-23 17:13

Hello,

2 questions:

1. For a client that has an ‘old’ Simple IRA (has been in effect much more than 2 years; is a dead Plan now), if transferred into a Traditional IRA is this considered a direct rollover? It’s my understanding it is not because it’s going from IRA to IRA (and the Simple IRA is not considered an ERISA qualified plan). Just want to confirm for purposes of completing transfer paperwork to initiate a trustee-to-trustee transfer.

2. For a client who has 3 Rollover IRAs, aggregating $671,215, is there any reason not to consolidate them (e.g. is there greater creditor protection if kept separate versus combined)?

For this client, she has another old 401(k) Plan (worth around $50k) that will be rolled over soon. As with the above, is it preferential to have this get transferred into its own Rollover IRA as opposed to 1 big one w/ the other 3 (or combined w/ one of the existing 3)?

Thank you!

Jason



Submitted by Alan - IRA critic on Fri, 2016-12-23 18:10

  • It can be done either as a direct transfer or a 60 day rollover. A 60 day rollover counts for purposes of the one rollover limitation per 12 months because each plan is an IRA. A direct rollover occurs only when a non IRA plan is on one end of the transaction. This is IRA to IRA, so the choices are either direct transfer or 60 day rollover. Direct transfer is the best way to move the funds because direct transfers are unlimited in number.
  • Creditor protection is a total limit, not per plan. Therefore, these rollover IRAs can be combined by direct transfer. In some states that use the federal BK law for creditor protection you would generally keep rollover IRAs separate from contributary IRAs, but these are all rollover IRAs so no reason not to consolidate them. The 50k 401k can also be combined with the 3 existing rollover IRAs into a single account.

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