“Roll Over” Beethoven

facebooktwitterlinkedinby featherSOM_ebook_cover_401kRecently, my twin sister asked me a very straight forward question:

Since I changed teaching positions, how do I move my 403(b) out of its current account and into a new one?

Ah, the curse of knowledge. I forget that although this is fairly routine for me, most people need a simple explanation. My sister didn’t even have the vocabulary to correctly ask the question. So I decided to write her an email:

 

Dear Susan,

You have several options regarding your 403(b) so let me begin by asking you a question? If you had immediate access to the funds, would it make a difference in your life now?  For example, you could use the money to invest in your new business, which we discussed previously.

Since you are past the age of paying a penalty on any distribution, and to the extent that you can justify the tax which would need to be paid on the funds, simply take the cash and use it.

Of course, this decision should also be discussed with your accountant so there are no surprises when tax time comes. If it’s decided that you want the funds now, you simply contact your benefits department and tell them you wish to have a full (or partial) distribution of the funds, and to send you a check. End of story. Live long and prosper.

If you decide you do not need access to the funds, and want to continue deferring tax and make future contributions, here’s another option you have:

Contact your benefits department and tell them that you plan on rolling over your retirement account to an IRA and would like to request a trustee-to-trustee transfer of your account set-up. If your Benefits Department says it must issue you a check instead, with the check made out to you, then the IRS will consider you to be in receipt of the money, thereby triggering a potential tax consequence. Insist that the check be made out instead to “ABC Bank” as trustee of IRA FBO (Your name). This way, the check can only be cashed by your bank to go directly into your IRA, thus qualifying as a direct transfer. IRS Regulation 1.401(a)(31-1).1

 

There is also something called the 60-day rule, where you have 60 days from the receipt of your funds to contribute them to an IRA without penalty. The trustee-to-trustee eliminates any possibility of you forgetting to make the deposit which could be costly. The IRS could subject you up to  50% of the value of your account in taxes and penalties. However, unless you can guarantee winning in Las Vegas, or the lottery, I don’t recommend this option.  If you don’t physically receive the check, the 60 day rule does not apply.

Retirement distributions are some of the most complex regulations the IRA has. There are minefields that could blow up sister, so I’m happy to discuss this with you some more. I hope this gets you thinking.

 

Love,

Brother

 

To request a free consultation call Jaimie at (212) 829-0265

Footnotes:

1Ed Slott, Your complete Retirement Planning Road Map

Written by Jaimie Blackman

Jaimie Blackman

Jaimie Blackman has created Sound Financial Decisions ™ powered by MoneyCapsules®, to help guide business owners through the complexities of succession planning.

Jaimie writes “Smart Succession”, a monthly column in Music Inc., and also writes a bimonthly column for Canadian Music Trades magazine. He has spoken at NAMM U Idea Center, and at Yamah’s Succession Advantage.

As a financial literacy educator he has taught at New York University and has lectured at the 92nd Street Y, Marymount Manhattan College, and CUNY.

As President of BH Wealth Management, Jaimie also helps his clients implement investment and insurance solutions which are aligned to their personal values. Visit bhwealth.com to learn more.

To subscribe to Jaimie’s Succession Success: Insights for Music Retailers, visit moneycapsules.com.

The purpose of this post is to educate. Our content should not be construed as advice. If legal, tax or other advice is required by the readers, professional advice should be sought.

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