Rollover clarity on pension and 401k on long term disability
Trying to determine the eligibility for client to rollover pension and 401k from employer. Client is 55 and diagnosed with a long term disability and unfortunately will likely not recover. Termination date is pending, possibly a couple months out. For the pension, client is interested in the lump sum option as a rollover and would rather not take as a distribution. Please provide clarity on rollover eligibility to an ira for this permanently disabled, pre 59.5 year old client for their pension and 401k. As well as potential tax consequence. Thank you
Permalink Submitted by Alan - IRA critic on Sun, 2020-10-18 23:02
The 401k should be eligible for rollover as soon as termination is processed. A direct rollover to an IRA will avoid withholding and taxes. The DB pension depends on plan age provisions, and whether a lump sum is offered. Client will have to check with the plan on the DB plan provisions. If a lump sum is offered, the same direct rollover provisions will apply once client is eligible as for the 401k plan.
Permalink Submitted by Gabe Medina on Tue, 2020-10-20 19:46
Would the DB rollover incur a penalty since he’s pre 59.5?
Permalink Submitted by Alan - IRA critic on Tue, 2020-10-20 19:53
Rollovers do not incur either taxes or penalties, except for taxes due if rollover is made to a Roth IRA.Basically, only distributions that are not rolled over incur tax and penalty. If a participant separates from service in or after the year they reach 55, distributions paid to the participant will incur tax, but no penalty.