| Rollover from 457 plan to IRA |
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ajminer
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 20 Aug 2005
Location: CA
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| Rollover from 457 plan to IRA |
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Hi -
I need some advice. I recently separated from employment with the State of California, and I do not receive retirement benefits through my new employer. I have 2 existing 457 plans through the previous emplyer - one is from when I was considered "temporary" (this is through the "Savings PLus Program") and the other is through CalPers which began after my position became permanent.
I am allowed to keep the CalPers account open indefinitely, but may not contribute to it. The interest rate is 6%.
The Savings Plus account MUST be rolled over to an IRA, or will be lost as "unclaimed funds". I can only roll over to a Traditional IRA (Not Roth or Simple).
I am very new to all of this and have tried to do some reading, but am confused!  I would like to know: A) Should I keep the CalPers account open, or put everything together in one IRA? B) Could anyone give me advice of what kind of IRA to open for the rollover (i.e. the best rates, best financial institutions, pros and cons of IRA CDs - could I even roll over into one of these?).
Thank you!
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Sat Aug 20, 2005 8:31 pm |
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efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
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I am not familiar with 457, but if it is eligible to be rolled over into an IRA, you should set up the IRA first and then do a trustee-to-trustee transfer.
Technically a traditional IRA is one you might contribute to on your own and a rollover IRA is one where you might keep funds from a previous qualified company plan to possibly roll over into a future company plan (401k, etc.). But I don't think it matters anymore which you call it, especially if you do not plan on rolling it into another company plan.
If you have a check made out to yourself, they have to withhold 20% from it, and if you do not roll that into an IRA within 60 days (including making up for the missing 20%), you would be liable for 10% penalty (if under age 59.5) and tax for the missing amount. If you have the check made out to the new trustee, or direct trustee-to-trustee transfer, there is no withholding.
Once it is in an IRA, you can gradually convert money from there to a Roth IRA, but you have to specifically tell them to not withhold tax, and make sure that you have enough withheld from your earned income (or make quarterly tax payments) to cover it. If you owe more than $1000 at tax time, you might be subject to penalties.
I opened an account at Fidelity.com for my IRA and Roth IRA and they took care of the asset transfer of my IRA to Fidelity. But if you are not sure what you want to do yet, check http://www.bankrate.com/ to see who has the best IRA CD rates. Just make sure that you have everything properly set up at the destination to do the transfer to the IRA without withholding.
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Tue Aug 23, 2005 1:52 am |
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fasttoon
New Poster
Cash: $ 0.40
Posts: 2
Joined: 16 Sep 2005
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Good thinking about the possibilities.
CalPers can be rolled over, although you need to decide if it's worth it or not. 6% is a pretty decent rate at this time. Typically the closer you are to retirement age the harder it is to make up the difference that CalPers will pay you at retirement. The younger you are the easier it is to make up and surpass that difference.
Your 457 must be rolled over within a 3 year time period starting with the date of your separation of service. If it does get transferred over to the state as "unclaimed funds" it's not a big deal, it is still your money, usually the custodian will send out a letter just before sending it to the state notifying you that it will go to the state if you don't roll it over. Once in the states control you can file claim paperwork that will take anywhere from a few months if there is no problems up to several years if there is a problemto get your money. You will not get any interest/gains/dividends during the time it is with the state. Of course if it gets this far you will need to speak to a CPA on how to handle the tax issues.
Both type of plans (CalPers & Saving Plus) can be rolled over into the same IRA plan. efflandt is right in that there are several different types of IRA rollover plans and that in most cases it no longer matters. If you are talking about a significant amount of money then it might be better to use a conduit/rollover IRA to give additional protection from creditors, keep that conduit/rollover separate from any other contributions you might make in the future.
You like most persons are confused about the type of investment inside the plan and what they do.
Simple explanation, retirement plans are a shell and are ruled by law. What you put inside the retirement plan depends on the IRS and the custodian/institution.
Like having a garage as the shell and buying a car as the investment and parking it in the garage, you can purchase any car that suits you, same with the retirement.
So you can purchase stocks, bonds, annuities, reits, mutual funds, money markets funds, cd's, savings account, which are the most typical investments people purchase for their IRA's, there are other investments you can purchase but I would not suggest you go there without competent advisor/advice (cost you big bucks).
Getting back to what to purchase inside your IRA. First of all get to know yourself, then determine your time frame before you will take distribution(s), determine how long your distributions will be, decide on your beneficiary(ies) and how you want that money to be distributed to them. Determining what you will be doing in retirement can help decide how to invest that money as well. Think about what kind of trade off you'll be able to live with (fluctuation, interest rate ceiling, lenth of term, fees, guarantees, portability, etc.) because you won't be able to get everything.
If this has confused you then maybe you should seek advice, call a few brokers, insurance agents, banks to start, make sure you will just get their opinions and idea's at first, remember this is time to shop for someone that will be with you as long as you have your retirement account. Then if you still can't figure it out try an accountant, CPA, CFP, RIA, attorney etc. but these guys will charge you to talk to them. Whoever you decide to open your account with make sure it's someone you feel comfortable with that is willing to understand what you want to do is while still giving you all the available options and working with you to decide how it will work for you.
You still have time, 3 years from date of separation to make a decision, in the meantime your accounts are accruing interest and if your are in funds you can still change the allocations at any time.
Good Luck!
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Sat Sep 17, 2005 12:36 am |
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