Rollovers Part Deux

Yesterday’s post on missing the 60-day rollover deadline should have included an IRS provided one-page rollover chart (pdf) summarizing the rules with the usual caveat that it is not a substitute for professional tax advice. Sorry for the omission.

This chart illustrates the portability of benefits that has resulted from recent tax law changes. While the rollover focus is usually on the "roll from" side, individuals now participating in a new employer’s qualified retirement plan should consider the "roll to" possibilities. Specifically, a direct rollover to the new employer’s plan from a prior IRA, SEP IRA, SIMPLE IRA (after two years), 457(b) plan, 403(b), or qualified plan.

Depending on the provisions of the new employer’s qualified retirement plan and, if permitted, it may be beneficial to do a direct rollover from a prior plan if:

  • It could be the basis for a loan.
  • It could be used to purchase life insurance in the case of a profit sharing plan.
  • The new employer’s plan has a better investment program.
  • In-kind assets, e.g., individual securities, could be transferred to a directed brokerage account.

In-kind assets, by the way, can include a loan from the prior employer’s qualified retirement plan if, of course, permitted by the Trustees of each plan. The advantage? A participant with an outstanding loan balance can avoid a taxable distribution or having to pay off the loan on the way out and can continue to make loan payments to the new plan.