Transfers v. rollovers - differences & definitions

[Guest dani_o]

I work with non-profit retirement plans (namely, 457s, 403(B)s, and 401(a)s). We've come across an issue of verbiage recently and were wondering if someone could assist us with the real differences b/w transfers (i.e., from one 457 plan to another) and rollovers and the where we can find the accompanying definitions.....I thought 401(a)(31) was a good place to start, but there's been a bit of dissnesion of whether it actually references rollovers, transfers, or both. If you were defining the two for clients, how would you describe each and what source would you have them reference?

[Michael Devault]

I've long used the approach that transfers are intra-plan movements of money. In other words, money goes from one investment to another, but stay a part of the same plan.

Rollovers, on the other hand, are made when a plan makes a distribution (or the participant is otherwise eligible to receive a distribution). Thus, the key to being able to make a rollover is that the client must have the ability to actually receive the money.

The way I explain it to clients is: In order to make a rollover, you have to be able to be able to roll the money around in your hand. If you can get money out of a plan due to separation from service or another qualifying event, you can do a rollover.

Hope this helps.

[Guest dani_o]

I think that answer works for 403(B)s and 401(k)s, but what about 457s? Rollovers are not permitted with 457s, but trustee-to-trustee transfers are (i.e., work for State of FL, terminate and go to work for State of Texas, you can have your AB transferred).

[Michael Devault]

You're right about 457 plans. Rollovers are not permitted (under current law) but transfers are. My expanded explanation: Every rule has its exception... please see footnote.

Hopefully, we'll get a pension portability bill signed into law one of these days, so my explanation will no longer need this expansion.

Mike