When NOT to Roll Over Your Company Retirement Plan Money to an IRA
By Joe Cicchinelli, IRA Technical Expert
Follow Me on Twitter: @JoeCiccEdSlott
When you switch jobs or retire, you are generally entitled to a full distribution from your company retirement plan funds such as a 401(k). You must be given the option to roll over those funds to an IRA. Certainly, a rollover to an IRA is a great decision most of the time. A direct rollover to an IRA is tax-free and keeps your retirement funds intact and growing on a tax-deferred basis.
Another advantage to the IRA rollover is that you can create a stretch IRA for your beneficiaries. So when you do the IRA rollover and then name your children or whomever as the beneficiary of your IRA, your beneficiaries won’t be forced to take a total distribution of the funds. They will be allowed to stretch the IRA distributions over their own single life expectancy.
But in some cases you may not want to roll over your company retirement plan funds to an IRA. One potential reason to leave the assets in your employer retirement plan is for federal creditor protection. Federal law protects your funds from your creditors while it’s inside the company plan. If, for example, you have creditor problems or are a business owner or physician who is worried about lawsuits, you may want to leave the funds in the company plan to shield them from creditors (note: to qualify for federal creditor protection the plan must have employees other than the business owner).
If you roll over company retirements funds to an IRA, federal law does NOT protect your IRA from creditors. Your IRA might be protected by state law, but this protection, if any, varies from state to state. So, before you do the rollover, you may want to find out if your state protects IRAs from creditors.
Federal law does protect your IRA in bankruptcy up to $1,245,475. Employer plan funds in an IRA receive unlimited protection. This is for bankruptcy only; not for other types of judgments such as lawsuits and creditors.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to email@example.com for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at firstname.lastname@example.org or (516) 536-8282 with any questions.