401(k) Rollovers

A rollover is generally a transfer of assets from a retirement plan maintained by a former employer to another retirement plan or IRA. Often, when employees change jobs or retire, they may leave retirement assets under the former employer’s plan. Rollovers consolidate your funds into an account that may be easier and less costly to monitor, and that may open up more investment options. When you do a rollover, you are simply moving your retirement money from one tax-advantaged savings vehicle to another. This allows the money to continue growing tax-deferred in the IRA or new plan, with little or no interruption.

There are two types of rollovers

With a direct rollover (trustee-to-trustee transfer), all of the money from your retirement plan is sent from your former employer directly to a Morgan Keegan IRA. As long as the distribution check is not payable to you, there will be no taxable event or penalty for early withdrawal.
Another option is an indirect rollover, which involves your former employer sending a check made payable to you. You have 60 days to perform an indirect rollover. The check payable to you will be for 80% of your account balance and 20% will be withheld for federal income taxes. In this situation, to avoid being taxed on a distribution by the IRS, you must come up with the extra 20% from your own funds and write a personal check for 100% of your previous employer’s retirement account balance to an IRA if you want to rollover your entire distribution. You’ll be able to recover the withheld taxes when you file your tax return. Any portion of your distribution that is not rolled over within the 60 day window will lead to a taxable event and a potential 10% early withdrawal penalty.

How to do a rollover:

Contact you former employer to request the necessary distribution paperwork
Review the tax notice provided from the plan administrator explaining the rollover rules
Consult with a tax advisor before selecting a rollover
Obtain your spouse’s consent, if required
Contact a Morgan Keegan Financial Advisor at 866/951-9511 and we will help answer your remaining questions and assist with the paperwork
Make sure that a proper check is sent from your old plan to the new one
If you receive the funds personally, do the rollover within 60 days

Rollover Guide

	Rollover To
Rollover From	Traditional/ SEP IRA	SIMPLE IRA	Roth IRA	Qualified Plan (incl. 401k)	Roth 401k / 403b Acct.	403b Plan	Governmental 457b Plan
Traditional SEP/IRA - taxable dollars ^1,2	Yes	No	Yes³	Yes⁷	No	Yes	Yes⁹
Traditional IRA - nontaxable dollars ^1,2	Yes	No	Yes⁴	No	No	No	No
SIMPLE IRA	Yes⁵	Yes	Yes^3,5	Yes^5,7	No	Yes⁵	Yes^5,9
Roth IRA	No	No	Yes	No	No	No	No
Qualified Plan - taxable dollars (incl. 401k )^6,7	Yes	No	Yes¹¹	Yes	No	Yes	Yes⁹
Qualified Plan - nontaxable dollars (incl. 401k) ^6,7	Yes	No	Yes¹¹	Yes⁸	No	Yes⁸	No
Roth 401k Account ⁷	No	No	Yes¹²	No	Yes¹⁰	No	No
Roth 403b Account	No	No	Yes¹²	No	Yes¹⁰	No	No
403b Plan - taxable dollars ⁶	Yes	No	Yes¹¹	Yes⁷	No	Yes	Yes⁹
403b Plan - nontaxable dollars ⁶	Yes	No	Yes¹¹	Yes⁸	No	Yes⁸	No
Governmental 457b Plan ⁶	Yes	No	Yes¹¹	Yes⁷	No	Yes	Yes
Source: Forefield, Inc. Used with permission.

^1.Required distributions and nonspousal death benefits can't be rolled over.
^2. In general, if you make a tax-free rollover from a traditional IRA, you can't make another tax-free rollover from that same IRA for one year. (This does not apply to direct (trustee-to-trustee) rollovers.)
^3. Taxable conversion. Income limits apply.
^4. Nontaxable conversion. Income limits apply.
^5. Only after employee has participated in SIMPLE IRA plan for two years.
^6. Required distributions, certain periodic payments, hardship distributions, corrective distributions, and certain other payments can not be rolled over.
^7. May result in loss of qualified plan lump sum averaging and capital gain treatment.
^8. Direct (trustee-to-trustee) rollover only; receiving plan must separately account for the after-tax contributions and earnings.
^9. 457(b) plan must separately account for rollover--10% penalty on payout may apply.
^10. Nontaxable dollars may be transferred only in a direct (trustee-to-trustee) rollover.
^11. Subject to income limits in 2008 and 2009. Taxable dollars included in income in the year rolled over.
^12. Subject to pending Pension Protection Act of 2006 technical corrections; otherwise may be subject to income limits in 2008 and 2009.

NOTE: Plans are not legally required to accept rollovers. Review your plan document.

Caution: Do you own highly appreciated company stock in your tax-deferred employer-sponsored retirement plan? You may want to double-check before you roll over your company stock into an IRA. It may be better to transfer the stock to a regular investment account and roll over any remaining assets into an IRA. With a distribution of retirement assets other than employer securities, all of the distribution is generally taxable to you in the year of distribution. When the lump sum distribution includes employer securities, however, you may only need to pay ordinary income tax on the cost basis. The appreciation above the cost basis may qualify to receive long term capital gains tax treatment when the securities are sold. You may lose the favorable tax treatment once you roll over the securities into an IRA.

This information is for illustrative and discussion purposes only. Morgan Keegan does not provide legal or tax advice. You need to contact your legal and tax advisors for additional information and advice before making any investment decisions.