Rollover creativity

L1: Rollover creativity
2006-03-29 22:46, By: Ray, IP: [66.27.164.240]

L2: Rollover creativityHope you can answer this one in the affirmative for me. I am 52
1/2. I have two 401K plans. A larger one with a former
employer, and a smaller one with a current temporary employer.
Here”s the question: If I stop working, become re-employed with a
company that has a desirable 401K plan (my current one would be
perfect), then rollover to the new plan an amount ten times larger than
the new plan”s balance, then separate shortly later in the year I turn
55, perhaps in the same year, would this entire amount then become
available without penalties? I actually called the IRS and the
fellow I spoke with said he saw no reason there would be a
problem. I”m wondering about time-limits, rules unknown to me
especially about rollovers, etc. I know I need to speak with a
financial analyst, but at the moment I can”t part with the money.

One more – if I go to work already 55, do the rolllover, then separate, is the money penalty-free.

Hope this doesn”t sound ridiculous. I love the safety of 401K plans. Thanks so much. – Ray
2006-03-29 22:50, By: Ray, IP: [66.27.164.240]

L2: Rollover creativityHello Ray:
I understand that you are using the word “rollover” in the logic sense; not in the literal sense. You would actually execute any of your proposed transactions as trustee-to-trustee transfers so as to avoid the mandatory 20% withholding tax when wihdrawing from a 401(k) plan.
All that being said, everything you propose is fine; e.g. do anything & everthing to load up the assets in the plan which is sponsored by the employer from which you are leaving during the year you attain age 55; then using IRC 72(t)(2)(A)(v); you are permited to withdraw as much as you like without penalty.
Check with your plan administrator to insure that they will support & honor your periodic withdrawal requests.
TheBadger
wjstecker@wispertel.net
2006-03-30 06:49, By: TheBadger, IP: [66.109.211.254]

L2: Rollover creativityGood morning Ray:
When you say, “I love the safety of 401K plans,” I’m curious about exactly what “safety” factors you refer too? What exactly do you mean?
You probably already know about TheBadger’s book, available through this site, for setting up your 72(t) distribution plan. But I will suggest another book, also available through this site. Ed Slott is recognized as “America’s IRA Expert,” and his book is “The Retirement Savings Time Bomb … and how to defuse it.” The long and short of it is that leaving your retirement funds inside the K-plan for an extended period, especially after age 59 1/2, generally is not in your best interest,which leads you to setting up an IRA Rollover account. After you read Ed’s book I think you will understand my comments.
Good luck.
Jim2006-03-30 09:07, By: Jim, IP: [70.184.1.35]

L2: Rollover creativityThanks so much for your replies. Jim, I agree that these 401k vehicles won’t necessarily bethe permanent home for my little bit of funds. I just need to get by the penalty years. And… I could possibly be vulnerable to losing everything, if at some time in the future, I could retain medical coverage. I won’t lose it as long as it’s inside one of these plans. Thanks, though.
Thank you, too, Badger. These would be direct transfers. I just rolled a very small one into my current plan in that fashion. I got the check, butmade out to the receiving plan.
This 55 thing just seems like to me that it looks like a trick, loophole, or whatever one wants to call it, just too good to be true. I could really use the $25,000 or so I’d lose in penalties in seven years if I decided a 72t was not practical.
That one question I didn’t hear about, though. What if I’m already 55 when I become emloyed, do the rollover, and separate. Can I walk with the whole thing? This is all 401k money.
Again, thanks.
Ray2006-03-30 11:30, By: Ray, IP: [206.194.127.112]

L2: Rollover creativityRay,
You should be OK as long as your last separation occurred in the year you turn 55 or ANYTIMElater. The difficult part may be getting the receiving plan to accept rollovers from various retirement plan sources. Some of these plans will not take IRA accounts that are not purely rollovers from another employer plan because they cannot accept any after tax amounts, such as may be contributed as a non deductible IRA contribution.
Note that you should also check to make sure the receiving plan will allow partial distributions after you separate. If they allowed only a lump sum distribution, any benefit of escaping the penalty would be offset by having a large lump sum included in your taxable income in a single year. You would need to be able to take smaller periodic withdrawals from the plan. Once you hit 59.5, then you could do a direct rollover to an IRA.
2006-04-01 16:31, By: Alan S., IP: [24.116.165.157]