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Direct rollover or direct transfer?


Guest Carl C
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I have an Equitable SIMPLE IRA, held longer than two years. I now want to move the full cash value of that plan (to close it out) to a new Traditional IRA outside of Equitable.

The transfer form that Equitable sent me offers two of three possible options (the third being a Taxable Rollover Conversion, which is not applicable). In the General Instructions "Reference to "Traditional IRA" will also include SEP, SARSEP and SIMPLE IRA"

The options are:

Option 1, Direct Rollover -

In accordance with IRS Code Sections 401(a)(31), 402 and other applicable tax rules from a qualified plan or TSA into another eligible plan. Indicate type of retirement program and check:

TSA to TSA; TSA to IRA; Qualified Plan to IRA; Qualified Plan to Qualified Plan

Option 2, Direct Transfer -

TSA to TSA - Direct transfer from a TSA to another IRS Code Section 403(B) annuity contract or custodial account ("Section 403(B) arrangement") in accordance with Revenue Ruling 90-24, 1990-1 C.B. 97

Traditional IRA** to Traditional IRA - direct transfer (issuer to issuer, or issuer to custodian or trustee) of an IRA to anoyher IRA. During the first two years of participation a SIMPLE IRA cannot be transferred to an IRA.

**IRA refers to an individual retirement account and/or an individual retirement anuity under Internal Revenue Code Section 408.

Roth IRA to Roth IRA - (N/A)

NQ to NQ - (N/A)

I've gotten two different answers as to which I should select (Direct Rollover or Direct Transfer) given what my intentions are.

Can anyone either explain the difference between a rollover and a transfer, or which best suits my intentions.

Carl

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Guest investviews

A 'direct rollover' is a transfer of retirement plan assets in which you (or your custodian) recieves the proceeds from your plan in the form of a check which is then forwarded or credited(deposited) to your IRA account.

A 'direct transfer' is an electronic transfer of the plan assets from your retirement plan into your IRA account.

Either format is acceptable, although your plan administrator, or IRA custodian may have a preferred method. (most prefer electronic transfers)

At my firm, we always try to perform 'direct transfers' for our clients, but sometimes we must move the money as a 'rollover.'

TIP: Establish an IRA account first (if you do not already have one), since Rollover/Transfer instructions will need to include your account number, and custodian information. Request/complete the Rollover/Transfer Form provided by your Employer. Keep copies of everything you submit for your records.

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  • 2 weeks later...

After two years you can treat the SIMPLE IRA as an IRA for rollover purposes. You can do a trustee-to-trustee transfer (IRA to IRA) or receive the assets and within 60 days place the same assets in another IRA (traditional) or SIMPLE IRA. The direct transfer has the benefit of simplicity and things are less likely to go wrong. If cash were distributed you could play with it for 59-9/10 days before rollong it over. If non-cash property, then it is best to do the direct transfer. BUT either way is okay.

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Guest Carl C

Gary, thank you for your answer. I wish I had known that a few weeks ago. I asked Equitable what the difference was, and they told me I had to refer to a tax specialist. The person at the receiving firm told me to do a rollover, but I don't think he really knew the difference. Anyway, Equitable closed my account last Friday, and now they tell me it will be this Friday till the check is cut, and a few days to mail. If I knew a transfer was done electronically, I would have done that.

I was also disappointed at Equitable when I asked if I had to have the spousal consent portion signed and notorized (I'm not married). All he would say was the plan I was I was not an ERISA plan. I asked him again point blank, "Does that mean I have to sign it"? He said again it was not an ERISA plan. He absolutely would not answer yes or no.

Anyway, thanks again for your help.

Carl

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