ROUTING NUMBER: 307070050
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ROUTING NUMBER: 307070050
By Kirtland Financial Services
When you roll over a distribution from a 401(k), 403(b), or governmental 457(b) plan, you generally don’t pay any taxes until you receive a distribution from the new plan or IRA. If you take a distribution but don’t roll it over, it will be subject to federal (and possibly state) income taxes (except for any after-tax contributions you’ve made); and if you haven’t yet reached age 59 1/2, you may also be subject to a 10% early distribution penalty tax unless you’re eligible for an exception.1 If you take a cash distribution, you’re also foregoing any further tax-advantaged growth; and if you spend the funds, you may not have sufficient assets to last throughout retirement.
Note: Special rules apply to distributions from designated Roth accounts: Qualified distributions are entirely tax-free, and only earnings are taxed if your distribution is nonqualified. A distribution is qualified if you satisfy a five-year holding period and you are age 59 1/2, disabled, or use the funds to purchase your first home ($10,000 lifetime cap). State tax rules may be different.
Note: Not all distributions are eligible to be rolled over. You cannot roll over hardship withdrawals, required minimum distributions, substantially equal periodic payments, corrective distributions, and certain other payments. Nonspousal death benefits can be rolled over only to an inherited IRA, and only in a direct rollover.
Note: Before investing in a mutual fund, carefully consider the investment objectives, risks, charges, and expenses of the fund. This information can be found in the prospectus, which can be obtained from the fund. Read it carefully before investing. Diversification alone cannot guarantee a profit or ensure against the possibility of loss. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any strategy will be successful.
Both employer retirement plans and IRAs typically have: (1) investment-related expenses and (2) plan or account fees. Investment-related expenses may include sales loads, commissions, the expenses of any mutual funds in which assets are invested, and investment advisory fees. Plan fees typically include plan administrative fees (e.g., recordkeeping, compliance, trustee fees) and fees for services, such as access to a customer service representative. In some cases, employers pay for some or all of the plan’s administrative expenses. An IRA’s fees may include, for example, administrative, account setup, and custodial fees. Be sure to carefully consider the expenses and fees in each alternative.
Also be sure to consider the different levels of service available under the employer’s plan versus an IRA. Some employer plans, for example, provide access to investment advice, planning tools, telephone help lines, educational materials, and workshops. Similarly, IRA providers offer different levels of service, which may include full brokerage service, investment advice, distribution planning, and access to securities execution online.
In order to receive a tax-free qualified distribution of earnings from a Roth IRA or from a designated Roth 401(k), 403(b), or 457(b) account, you must satisfy a five-year holding period. Separate five-year holding periods apply to designated Roth accounts and Roth IRAs. If you receive a nonqualified distribution from a designated Roth account and roll it over to a Roth IRA, the investment earnings rolled over will then be subject to the Roth IRA’s five-year holding period. So, for example, if your money has been in a designated Roth account for four years, and you roll those dollars into your first Roth IRA, they will be subject to a new five-year holding period — the amount of time those dollars spent in the 401(k) plan does not affect your Roth IRA holding period.
On the other hand, if you receive a distribution from your designated Roth account and roll it over into a designated Roth account in a new employer’s 401(k), 403(b), or 457(b) plan, your five-year holding period in the receiving plan, for both the amount rolled over and other funds in the receiving plan, will be the five-year holding period in the distributing plan or the five-year holding period in the receiving plan, whichever ends first (i.e., whichever is more favorable to you).
Required minimum distributions (RMDs) are generally required from Roth 401(k)/403(b) accounts after you turn 72 (or after you retire, if later, unless you’re a 5% owner). However, Roth IRAs are not subject to the lifetime RMD rules. You can avoid the Roth 401(k)/403(b) lifetime RMD rules by rolling your eligible distribution over to a Roth IRA.
1 If your distribution includes employer stock or other securities special tax rules may apply that can make taking a distribution more advantageous than making a rollover. Consult a tax professional.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
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