Pension funds not eligible for IRA rollover

L1: Pension funds not eligible for IRA rolloverI’mbeing offered an Enhanced Early retirement package. In looking at my early retirement payouts, it appears that I will exceed IRS guidelines and have a total of greater than $100K that will not rollover and become ordinary income. I was really planning on that money to factor into my SEPP plans.
What kind of opportunities exist, if any, tocombine those dollars into a 72T plan? If not, are there typical scenarios that people iinvest that money in to supplement SEPP income?
I do have a meeting set up with my FA, but since the people here have so much experience in these situation I am very interested in your thoughts.2005-08-03 11:53, By: Tim, IP: [69.204.120.243]

L2: Pension funds not eligible for IRA rolloverHi Tim:
Would you please elaborate more on your situation? Whatare the terms of your”Enhanced Early Retirement package?” What are the IRS guidelines your will exceed? I have never seen a lump-sum pension option that didn’t include all of the money in the employee’s account and all of it was eligible for rollover.
With a little more information I think we may be able to offer some ideas.
Jim2005-08-03 13:18, By: Jim, IP: [70.184.1.35]

L2: Pension funds not eligible for IRA rolloverMy enhanced early retirement package includes rolling over an additional one year’s salary as a lump sum into my 401K or IRA. In my package there is a statement that read that all payments are subject to certain IRS limits. If my payment exceeds those limits, any excess will be paid from an “Excess Benefit Plan”. “Payments from these plans are not eligible for rollover or other special tax treatment. Payments under these plans may also be subject to certain restrictions due to the American Jobs creation Act.”
My understanding is that my regular retirement accounts will rollover without a problem, but the Enhanced piece, the extra year’s salary rollover will be capped at $210,000. Anything over that will be treated as ordinary income.
I called Fidelity and this is what the person told me.2005-08-03 14:15, By: Tim, IP: [69.204.120.243]

L2: Pension funds not eligible for IRA rolloverHello Tim:
I profess to be stumped; but I am not about (yet) to tell you that Fidelity is wrong. Here is bottom line: If the money goes into a 401(k) plan then it is rollable. Please have some one provide a cite as to this peculiar situation.
TheBadger
wjstecker@wispertel.net
2005-08-03 17:18, By: TheBadger, IP: [66.250.23.22]

L2: Pension funds not eligible for IRA rolloverBadger, thanks for your help with this.
I called back Fidelity. The person said this has to do withSection 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.
I apologize, I believe I had it wrong about the amount being added to my 401K. This is being paid from the company’s retirement fund and being added to my defined plan(?) pension.
It was interesting that the first person I talked to said the annual benefit limit was $210,000. On my second call, he went off for a while and researched the answer, the amount was stated as $170,000. It gets worse everytime I call, so I am going to stop calling!!
This looked alot more attractive when I thought I was going to be able to rollover a lot more money into my IRA to base my SEPP!!2005-08-03 18:11, By: Tim, IP: [69.204.120.243]

L2: Pension funds not eligible for IRA rolloverTim:
Like TheBadger I”m still not completely clear as to the situation, but here is something to keep in mind about the “color of money.”
When I say “color of money” I”m referring to before-tax dollars and after-tax dollars, and some company plans, including 401(k)s, have a mixture of both types. The problem is you have already paid tax on the “after-tax dollars” and if you combine it with “before-tax dollars” by an IRA rollover, you might get the opportunity to pay tax on this money for a second time as you make distributions, or at the least you have an accounting nightmare figuring the ratio of taxable to non-taxable distributions. If you have after-tax money I suggest keeping it separate from the before-tax money.
When you do a rollover you should get two checks; one payable to the custodian of the Rollover IRA for the pre-tax contributions and growth, and for the growth on the after-tax dollars. The second check is for the basic after-tax dollars in the plan and this check is payable to you and not subject to more taxation or any penalties. What you do with this money is your choice. It could become spending money to supplement the SEPP you are considering, or your could invest it in a variety of options.
Jim
Let me modify my last comment. The after-tax dollars will not be subject to more taxation, assuming it has already been taxed.2005-08-04 09:03, By: Jim, IP: [70.184.1.35]

L2: Pension funds not eligible for IRA rolloverHello Tim:
This is turning into a mess; partially because it is a mess; partially becuase you are probably having terms thrown at you which only “sorta” make sense.
Here are some things upon which you may rely:
1. If money goes into any qualified trust — a 401(k), a 401(a) such as a defined benefit plan, etc., etc. IT IS QUALIFIED MONEY and is therefore eligible to be rolled to an IRA provided that the plan permits it. This is true 100% of the time & there are no exceptions but for monies put in the trust in error.
2. IRC 415 imposes a variety of limits on both DC plans (think 401(k)) and DB plans (think 401(a) defined benefit). Generally, the limits are: no more than $40k per year into a DC plan; no more than $160k benefit or 100% of your last 3 years earnings into a DB plan. This later test is expressed as ordinary annuity benefit dollars; not the amout deposited into the trust.
I suspect that your personal numbers are large which may or may not excceed IRC 415. Well, if they are that large, it is time for you to seek independent counsel; e.g. you need to go hire an employment benefits attorney to assure yourself that: (1) you know the real truth; (2) the severance package is being structured in a manner most advantageous to you.
TheBadger
wjstecker@wispertel.net
2005-08-04 09:33, By: TheBadger, IP: [66.250.23.21]

L2: Pension funds not eligible for IRA rolloverTim:
Well it does sound like you are difinitely in the “high-net worth” category, which brings on special concerns. I would hope your Financial Advisor has as a minimum account size of $1 million or more so you get someone with the proper knowledge and experience. This person will probably have either on staff or have access to the proper legal and CPA counsel needed, which TheBadger is referring. The FA should act as the “quarterback” to bring all elements together for you and help create a good workable plan.
Bill:
Pleaseclarifyyour first point in your last post. If “all money” in a 401(k) and other type plans is “qualified” money, then why have I done so many IRA Rollovers and found the accounts containing both “before-tax” and “after-tax” dollars? Clients have come to me for years now with their account statements and it clearly shows one section containing “before-tax” dollars and another section containging “after-tax” dollars. When the transfer is made the client always gets a check for the “after-tax” money, payable to them and sent directly to their home address.
I know recent tax legislation now allows rollover of this “after-tax” money, but I haven’t founda good reasonto comingle these types of money so I prefer to keep it separated. Comments?
Jim2005-08-04 10:08, By: Jim, IP: [70.184.1.35]

L2: Pension funds not eligible for IRA rolloverHello Jim:
“Qualified” money does not pass judgement on it’s tax status; e.g. before tax or after tax. Qualified money means it was eligible pursuant to plan rules and lots of IRC 4xx code sections to be put into the trust. Further, all qualified money while remianing in the trust grows (hopefully) in tax deferred status & further that the trust itself is tax-exempt.
TheBadger
wjstecker@wispertel.net
2005-08-04 10:29, By: TheBadger, IP: [66.250.23.21]

L2: Pension funds not eligible for IRA rolloverJim,
It’s good to know you have experience seeing that seperate payout directly to the employee of taxable severance and that there is precedence for allowing both monies to be rolled over!
My appointment with my FA is this afternoon, I’m really interested in what they know and have experience with. I have an appointment with my CPA tomorrow.
I really appreciate your comments. I now know…what I don’t know…much better! You can believe I’ll be asking a lot of questions!2005-08-04 10:40, By: Tim, IP: [69.204.120.243]