401K

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L1: 401KGentlemen,
My mom retired at age 62 from J.C.Penney with a 401k that has pre tax and after tax money. A month late she re-hired with J. C. Penney (this was her plan) on a parttime basis. She was able to keep all her benefits and continues to contribute to her 401K. She would like to roll this 401k into a self directed IRA. Can this be done since she retired even though she is stillworking part time for the Company? If yes, How does one handle the pretax and aftertax money? Thank you so much for your help.

2003-05-12 18:15, By: ronnie, IP: [127.0.0.1]

L2: 401KHello Ronnie:
This situation is going to get a little sticky. An IRC requirement for a 401(k) plan to make a qualified lump sum distribution (QLSD) is that there must be a bonifide separation of service; e.g. the employee quits or was fired. Thus, I suspect, that given that your mother has already been rehired, she is most likely continuing to contribute to her 401(k) account that existed when she retired. As a result, the plan administrator is likely to say NO to the IRA rollover. Conversely, if she is contributing to a different account, the plan administrator may permit it.
In any event, should your mother be able to get a QLSD, the actions/treatment of the monies are your mother’s choice:
1. All the money can go to an IRA.
2. Send just the before-tax monies and earnings to the IRA and distribute the lifetime-to-date after-tax contributions directly to your mother (this would be a non-taxable transaction & the most frequesnt choice).
3. Some mix causing some taxable income recognition for your mother.
TheBadger
wjstecker@wispertel.net

2003-05-13 08:29, By: TheBadger, IP: [127.0.0.1]