The start of the new year is a good time for a refresher course on the contribution limits that apply when someone is in two different retirement plans at the same time or at different times within the same year (e.g., after changing jobs). The rules are challenging because there are two different contribution limits to worry about – the “elective deferral limit” and the “overall contribution limit.”
The start of the new year is a good time for a refresher course on the contribution limits that apply when someone is in two different retirement plans at the same time or at different times within the same year (e.g., after changing jobs). The rules are challenging because there are two different contribution limits to worry about – the “elective deferral limit” and the “overall contribution limit.”
Some of you are aware that there are two types of section 457(b) retirement plans – governmental plans for state and local municipal workers, and “top hat” plans for highly-paid and managerial employees of tax-exempt employers like hospitals. What you may not know is that the two types of plans are different in several important ways.
There are three types of company savings plans:
401(k) plans if you work for a for-profit company;
403(b) plans if you work for a tax-exempt employer, a public school or a church; and
457(b) plans if you work for a state or local government.
Many sections of the tax code are confusing, but section 457(b) is one of the major offenders. Within that section are the rules for two different types of company retirement plans -- governmental plans, and “top hat” plans for management employees of tax-exempt employers like hospitals.
Think of a top hat, and you’ll likely conjure up images of Franklin Delano Roosevelt or the temporarily-deceased Mr. Peanut or Rich Uncle Moneybags from Monopoly. But a “top hat plan” is also the informal name of a type of section 457(b) plan for management employees (hence the name “top hat”) of private tax-exempt companies such as hospitals. A top hat plan is different from the more common type of 457(b) plan for state and local government workers.
You or your client has several retirement accounts. Can you take the required minimum distribution (RMD) from just one account? The answer is maybe. Let’s start with what you cannot do. You cannot take the RMD for one type of account from a different type of account.
We are starting to get asked whether or not there are required distributions from Roth 401(k), Roth 457(b), and Roth 403(b) accounts. The answer is – Yes. Following is our chart that compares some of the features of Roth IRAs, Roth 401(k)s, and 401(k)s.
This week's Slott Report Mailbag comes to you live from the Arizona Biltmore Resort and Spa and our Fall 2012 Master Elite and Elite IRA Advisor Group Workshop. We answer questions about rolling before-tax and/or after-tax money to an IRA, non-governmental 457(b) plans and rolling money to an IRA during bankruptcy.
IRAs are not only different, but the rules governing them can be difficult. The Slott Report Mailbag is here to wade through the intricate details and help consumers make the right choices for their retirement plans, and steer them to able, educated financial advisors who can help them fill in the blanks. This week we received questions on the once-per-year rollover rule, buying a building with your IRA, and what qualifies has a hardship distribution.
