401K versus Rollover to IRA and 72T
L1: 401K versus Rollover to IRA and 72THi guys. I posted a while back and got some good feedback. Some of the assumptions have changed and I need additional information.
This would be a new SEPP. I am 53 years old, and retired on 12/31/2016. I have a 401K with a substantial amount of money in it. The funds in this 401K were from a ESOP distribution, but I am not holding company stock, and did not have any cost basis on the amount. I also have other IRA accounts, as does my spouse, who is continuing to work.
I need some guidance regarding the advantages of taking SEPP distributions directly from the 401K or rolling it over to an IRA account and setting up a 72T plan. I am working with the plan administrator on determining if I can make SEPP distributions directly from the 401K, as I am unsure that this is an option. If I roll it over into an IRA at a brokerage, I have MORE investing options and a less “clunky” internet interface. Are there any long term tax advantages with keeping it in the 401K? Thanks for your advise.2017-05-05 16:43, By: NotSoOld, IP: [184.108.40.206]
L2: 401K versus Rollover to IRA and 72TEven if you can take your SEPP distribution annually from the 401k, this can be risky due to lack of full control over the account. For example, you cannot partition the account into separate accounts having a balance that generates the distribution amount you need. There is the possibility of a late excess contribution situation for 2016 that could result in a corrective distribution after you started your plan, or in certain cases the plan could make an unexpected contribution to the 401k to prevent having to make a distribution to highly paid employees. There could also have been an error in company matching contributions for some prior year which could result in additions to the 401k. Any of these would bust the plan. The plan could also change distribution provisions and administrators before your plan is complete. Therefore, doing a direct rollover to an IRA is recommended since you will have much better control of an IRA account.
One advantage of keeping the 401k would be if you live in a state with poor creditor protection for IRAs and you have an exposure, you would want to keep the assets in the 401k if you can get some assurance that the above situations are not likely to happen with this plan.
2017-05-05 18:15, By: Alan S, IP: [220.127.116.11]
L3: 401K versus Rollover to IRA and 72TI agree with Alan.
One clarification. We usually suggest that clients have a separate account for part of their IRA to cover contingencies or unforeseen needs. You seem to have that covered with your separate IRA and your wife’s. Those accounts could be used in the future for an additional SEPP.
Since you have already separated from service/retired, you cannot benefit from the age 55 provision of a 401-K plan vs the 59 1/2 for IRA’s. BUT, if you decided to set up your own company, you could then set up a 401-K in your own company, and then roll over either your old 401-K or IRA into your own new 401-k plan, at least until you were 55, and then if you separated from service at that time from your own company, you could probably use the age 55 provisions.
Another aspect is that 401-K plans have their own RMD at 70 1/2, separate from the RMD for the IRA plans at 70 1/2. But, after 59 1/2 you would probably roll over the 401-K into the IRA anyway.2017-05-05 19:44, By: dlzallestaxes, IP: [18.104.22.168]
L4: 401K versus Rollover to IRA and 72TThanks for your help. Yes, we have the other IRAs, etc. for contingencies . I will be rolling the 401k into an IRA that will be used for the 72t. I appreciate the effort you put into this informative website!2017-05-09 14:47, By: NotSoOld, IP: [22.214.171.124]