One Rollover Per Year Rule

Submitted by Rich Spaller on Wed, 2022-10-05 12:08

I have a client, age 50, that recently left teaching and is working with a local hospital. She has a 401a (teacher pension fund) and is qualified to receive a pension. This fund will pay her a pension amount of almost $1300/month at age 65 (in 15 years). She wants to do a direct transfer of her 401a (almost $150,000) to her new 403b with the hospital. She also wants to take some of the money and rollover to her traditional IRA. The dilemma is that her teachers fund does not allow her to do a partial withdrawal/rollover. So, if I help her do a direct transfer of 100% of her 401a to the 403b, how long would she have to wait to do a partial withdrawal from her 403b to her traditional IRA? Would she have to wait a year due to the “only one rollover per year” rule? Would the direct transfer to the 403b count as a rollover? And…, is this a good idea or should she keep the money protected in her 401a and take the pension at 65? Her new 403b is aggressively allocated and her traditional IRA is conservatively allocated if that helps.
Thanks.



Submitted by David Mertz on Wed, 2022-10-05 14:34

  • The one-rollover-per-year limitation does not apply to rollovers to or from non-IRA employer plans like a 401(a) or 403(b).
  • The 403(b) may or may not permit in-service distributions.  If the 403(b) will accept rollovers from a traditional IRA, it might be better to directly roll the 401(a) to a separate rollover IRA, then roll a portion of that over to the 403(b), avoiding any restrictions on distributions from the 403(b).
  • A direct rollover from the 401(a) is a rollover but avoids mandatory tax withholding.
  • Whether or not to take a pension buyout is a personal decision after examining the long-term potential financial effects of each choice.
  • Investment allocations can be changed, so that’s not really a significant factor.

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