Disadvantages to rolling over a pre-retirement distribution?

[chris]

Are there any significant disadvantages to taking a pre-retirement distribution from your PSP and rolling it over to an IRA? Participant is older than 59 1/2, so no 72(t) penalty issue. Participant will roll out the contribution he receives each year in the PSP going forward to the IRA.

[Guest]

I suppose the stock market could continue to drop and so the value of the IRA would be less in the future than it is now. however, since the individual is older than 59 1/2, general wisdom says the money should be invested in something that would not flucuate as much.

[RCK]

As a sponsor, I'd say that the participant loses the advantage of the sponsor's due diligence in fund selection, and therefore picks up a little more responsibility. For a sophisticated investor, this would obviously not be an issue.

The more tangible advantage might be access to lower expense levels--either contract fees, front end loads or investment management fees.

[Guest]

I think an even bigger advantage is you don't tend to become 'missing' if you move.

it is fun trying to find someone who has an account balance in a pension plan and has moved. Oh, I keep forgetting, I am the only one who has plans like that!

[RCK]

Keep in mind that the question as posed was for an active employee. We lose terminated people all the time, but hardly ever lose an active.

[Richard Anderson]

Tom, this guy still works there. He's not missing. If they need to locate him, he should be at his desk. (or the water cooler)

[Alan Simpson]

What about the fact that IRAs can be subject to creditors if the participant falls upon hard times, where a qualified plan is out of the reach of creditors.

[Guest]

Rich:

I heard about that guy - he is an outstanding person...he is out standing by the water cooler right now.

other disadvantage to IRA :no loans. you might be able to get one from the plan if you needed it.

[Bill Berke]

What does the plan say about distributions while employed before or after attaining NRA/NRD? That language does control. And it is not always possible to roll out each year's contribution. Again you must go to the plan document. Then you can think about all the considerations, plusses and minuses in the above comments.