Can I Move My Pension Money to a Rollover IRA?
Your pension is a retirement savings plan created by your employer based on years of service and annual compensation amounts. If you leave your employer, you have the option of rolling your pension into another qualified plan, such as an individual retirement account (IRA), in a tax-free transaction. Placing your money in an IRA gives you more control over investment options.
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Rollover Basics
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A rollover moves assets from one qualified retirement savings plan into another qualified retirement plan. A pension is an employer plan, though not all employers allow assets rolling into the plan from another. If you are unable to move money to your new employer's retirement plan, your option is a self-directed IRA.
Two types of rollovers are possible: direct and indirect. The direct rollover transfers money directly from the existing plan administrator to the new one. The indirect rollover sends you a check with the liquidated proceeds from the pension. You have 60 days to deposit the check in the new qualified account to prevent taxes and penalties.
Rollover Eligibility
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Before you can roll over a pension, employment must be terminated. It doesn't matter why you no longer work there. Some employers require 30 days of termination of service before allowing pension rollovers. While the Internal Revenue Service allows a qualified plan to roll into another qualified plan, it doesn't require administrators to accept another plan's funds. If you want to combine your pension funds at your new job, check with the pension administrator to see if this is allowed. Otherwise, keep the money at your former employer to roll it into a self-directed IRA.
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Ineligible Rollover Funds
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Some funds are ineligible for a roll over from a pension. If you are taking period payments, regular payments for more than one year that are equal in value and taken at scheduled intervals, you are not eligible to roll the money over. Periodic payments should not be confused with non-periodic payments, which are occasional, manually elected payments. If you are unsure what type of payments you are taking, speak with a tax adviser or the pension plan administrator to get an accurate answer.
Rule of Rollovers
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You are allowed to perform one rollover with pension assets per 12 months. If you choose to convert the rollover into a Roth IRA, this is an exempt rollover transaction regarding the 12 months. When taking indirect rollover funds, the check is less 20 percent of your pension value. The IRS mandates this amount for federal withholding. To complete the rollover and prevent a taxable distribution with penalties, your deposit into the new qualified plan must have the check value plus 20 percent. You'll have to dip into savings to get it because the IRS won't credit it back until you file your personal tax returns showing the completed rollover.
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