By Sarah Brenner and Beverly DeVeny
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This week's Slott Report Mailbag includes questions about placing an IRA in a trust, what to do with 401(k) funds from a previous employer and the nuts and bolts of the Roth IRA 5-year rules. As always, we recommend that you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.
I have an IRA account with a financial consultant at a bank. The consultant may invest in various mutual funds.
Can an IRA account be placed into a trust -- irrevocable or revocable?
You may not place your IRA in a trust. If this happens, those assets would no longer be considered IRA assets under the law. However, you may name a trust as the beneficiary of your IRA.
I saw your program on Thirteen and I have a question: I have my 401(k) in my previous employer's plan; that company is being dissolved, so the 401(k) plan is being terminated. What would be my best choice? I can roll it over to a John Hancock IRA, or would it be better to roll it over to an IRA of my choice? I would like to eventually rollover these funds to my next employer's 401(k) plan.
Thanks for any suggestions,
When you are receiving a distribution from your 401(k), you have many options to consider. If the funds are eligible to be rolled over, you may roll them over to an IRA with the same company or to an IRA with another company of your choice. You will need to decide whether a traditional or Roth IRA is right for you. Also, while rolling over to an IRA may be a good idea in many cases, there are times when it is not the best option. Consider a consultation with a knowledgeable financial advisor to determine what is best for you in your situation.
I converted some of my IRA to Roth after age 59 ½. I took a Roth distribution before 5 years was up. The distribution involved only original principal, not any earnings.
Am I subject to any penalties? What if I had taken a distribution that included earnings?
Jerry C. Doss
Your distribution of converted funds is tax and penalty free. The distribution of converted funds from a Roth IRA is always tax-free and because you are over age 59½ there is no 10% early distribution penalty. This is true even though you say you took the distribution within five years from the year of the conversion.
If you took a distribution that included earnings, the results may be a little different. If the five-year period for qualified distributions of earnings is not satisfied, the earnings would be taxable but not subject to penalty because you are over age 59½. Remember that the five-year period for qualified distributions of earnings is different from the five-year period for penalty-free distributions of converted funds. The five-year period for earnings begins with the year of your first conversion or tax-year contribution to any Roth IRA. This means that if you have another Roth IRA elsewhere where the five-year period is satisfied, your distribution of earnings from this Roth IRA would be both tax and penalty free.