How do we roll over 401(k) plans for new employees?

[Guest Hayliebunny]

How do we roll over previous 401(k) plans for new employees? I assume it isn't too difficult, but I don't want to underestimate it.

[ccassetty]

First of all check your plan document. Does it allow the plan to accept rollovers? Does it accept rollovers from any employee or only those who have the met the plan's eligibility requirements. You have to be certain that the rollover can be accepted by the plan.

If the participant is able to rollover the money into the plan, you will need to be certain that the participant completes at minimum a beneficiary designation form and an investment election form, assuming your plan is participant directed. If the participant is already making deferrals and has completed these forms previously, there is no need to have them completed again, unless it is your policy to offer the employee the option of selecting different investments for the rollover money. You will also want to check with your plan's service provider to see if they have any special forms they want completed.

The participant's prior plan may require that the accepting plan (that's you) complete a form verifying that you will accept the rollover. The participant will also need information on how to have their prior plan make out the check and where to send it. You will want to verify this with your service provider, but it is usually something like Trustees of the XYZ 401(k) plan fbo John Doe.

Hope this helps!

Carolyn

[QDROphile]

The receiving plan has no obligation concerning taxation of amounts distributed from another plan, except to distinguish what amounts are after tax amounts. The notion of making "the rollover whole" is misconceived.

[Guest Blueglass]

You can request an IRS letter for the previous employer stating that the plan is qualified. Also, you can instruct the employee to inform the previous administrator to directly transfer all or part of the employees taxable distribution directly into this plan in cash (not stocks). No taxes are withheld on the amount directly rollover over into your plan.

Indirect rollover (participant received distribution in their name) : (within 60 days of distribution) Participant will need to add other funds to the rollover up to the amount of the taxes withheld if he/she wants to make a complete rollover contribution of the entire taxable balance he/she had in the other plan.

As required by federal tax rules, after-tax contributions are not eligible for rollovers into the plan. For more information, seek a financial advisor, CPA, etc.

[WDIK]

Blueglass:

Please don't delete prior posts as it makes the thread difficult to follow afterwards.

[Guest Blueglass]

I deleted to reword....

[Guest Blueglass]

Also, I disagree with the comment that the plan has has no obligation concerning taxation of amounts distributed from another plan. How can a rollover take place if a participant took a distribution? The employee would have to pay whatever taxes were withheld in order for a rollover to occur, correct?

[WDIK]

A participant is not necesarilly required to roll over 100% of their benefit. They may receive part of their benefit as a lump-sum and roll over the rest.

[Guest Blueglass]

If a participant took 100% distribution from the plan, they have to make up the taxes for the rollover to occur, correct (that is what I was trying to say)? Also, if a participant rolls over their funds into an IRA, they can rollover their funds into the new employer plan only if the IRA contains no money other than the distributions from other employer plans.

[Appleby]

Indirect rollover (participant received distribution in their name)  : (within 60 days of distribution) Participant will need to add other funds to the rollover up to the amount of the taxes withheld if he/she wants to make a complete rollover contribution of the entire taxable balance he/she had in the other plan.

As required by federal tax rules, after-tax contributions are not eligible for rollovers into the plan. For more information, seek a financial advisor, CPA, etc.

The rules were changed under EGTRRA 2001. After tax amounts can now be rollover. If the after-tax amount is being rolled over to a qualified plan, it must be done as a direct rollover.

Regarding deleting to repost- I understand the need to correct – but it does make the person/s who responded to your first post appears to be crazy as it seems they are responding to/commenting on a comment that was not made here. It may be better to edit your post ( before a response is made) and if a response was already made to your comments, you may consider posting a follow-up or clarifying comment

[Appleby]

If a participant took 100% distribution from the plan, they have to make up the taxes for the rollover to occur, correct (that is what I was trying to say)? Also, if a participant rolls over their funds into an IRA, they can rollover their funds into the new employer plan only if the IRA contains no money other than the distributions from other employer plans.

WDIK is right. A partial rollover is allowed. Also, making up the taxes that were withheld is optional. Rolling over only the net amount received just means that the amount withheld for taxes will be treated as ordinary income, subject to income taxes and the early distribution penalty – unless an exception applies.

The rules regarding rollover of IRA assets to qualified plans were also changed under EGTRRA. It is no longer limited to conduit IRAs (IRAs holding assets that were distributed from a qualified plan and have not been commingled with other assets). Amounts that cannot be rolled from an IRA to a qualified plan include non-taxable amounts, amount representing RMDs, or other amounts that are not rollover eligible- for instance an ineligible (or excess) contribution to the IRA