Transfer/Rollovers

[Guest Redchip]

In simple terms, could someone help explain to me the differences between 401(k) transfers and rollovers. When would an individual use one over the other?

[Alan Simpson]

Basically a transfer is when benefits are distributed directly from one plan trustee to another and where participants do not have the right to elect immediate distribution (ie. plan merger, spin-off). A rollover is a transfer from a qualified plan into either an IRA or another qualified plan.

[Kathy]

To clarify, a Rollover occurs after an eligible distribution from the plan. Eligible rollover distributions usually may only occur upon termination of service, termination of the plan, attainment of retirement age, death or disability. If the distribution is an eligible rollover distribution, the individual may either receive the cash and roll it over within 60 days or have the plan administrator send it directly to the new plan administrator or IRA trustee or custodian.

A transfer usually occurs from trustee to trustee and there is no option to take a distribution from the plan. As Alan pointed out, this might be because of a merger, spin-off or termination of one 401(k) and then creation of a subsequent 401(k) plan.

[jlf]

Kathy,

Your definition of an "eligible rollover distribution" does not conform with the statutory definition at IRC section 402©(2),(4). Reg. Section 1.402©-2T,Q&A 3-9.

You are using the triggering events upon which one may effectuate an early or premature distribution (taxable events) to also govern rollover eligibility. The restrictions and distributable events, however, upon which one may effectuate a rollover were repealed effective January 1, 1993. See section 402(a)(5)© prior to January 1, 1993. Unemployment Compensation Amendments of 1992.

"Observation. Generally the post-1992 rollover requirements are easier to satisfy. Unlike the pre-1993 rules, the post-1992 rules are not limited to those cases in which the distribution would be treated as a lump sum distribution. (The entire account balance received within a single tax year and be triggered by: termination of employment, turning 59.5, termination of the plan, or death of he participant.) If a partial distribution is made from a qualified trust, there is no requirement that at least 50% of the employee's balance be distributed nor is the rollover limited to distributions that are made on account of the employee's death, his separation from service, or disability. Furthermore, unlike the pre-1993 law, a partial distribution to an employee doesn't have to be rolled over into an individual retirement account or annuity." SOURCE: RIA, UNITED STATES TAX GUIDE, VOLUME 1, TAXATION OF EMPLOYEE BENEFITS (IRC SECTION 402) PARAGRAPH 402.04, P.12,037. ISSUED MAY 3, 1993.

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[This message has been edited by jlf (edited 08-28-1999).]

[This message has been edited by jlf (edited 09-03-1999).]

[jlf]

I'm concerned that there has been no response to my post of 8-27-99?

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