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Plan Rollovers

When you eventually leave your job, you may find it beneficial to rollover your 403(b), 457(b) or 401(k) into an IRA for investment choices, control and efficiency. A rollover allows you to consolidate your 403(b), 457(b), and your 401(k) accounts from former employers. You can also convert an existing 403(b) or IRA into a Roth IRA, pay the tax today and never pay it again, as long as you meet the Roth requirements.

How it works

How it works

A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it, within 60 days, to another eligible retirement plan. For example, after 59 ½, you can move your 403(b) account to an Individual Retirement Account (IRA). This rollover transaction is not taxable. You can roll over most distributions from an eligible retirement plan. There are exceptions. Also rolling over a plan can result in negative consequences like surrender charges and higher fees.



-The nontaxable part of a distribution, such as your after-tax contributions to a retirement plan (in certain situations after-tax contributions can be rolled over)
-A distribution that is one of a series of payments made for your life (or life expectancy), or the joint lives (or joint life expectancies) of you and your beneficiary, or made for a specified period of 10 years or more
-A required minimum distribution
-A hardship distribution
-Dividends on employer securities
-The cost of life insurance coverage

Further exclusions exist for certain loans and corrective distributions. The taxable amount of a distribution that is not rolled over must be included in income in the year of the distribution. If an eligible rollover distribution is paid to you, you have 60 days from the date you receive it to roll it over to another eligible retirement plan. Any taxable eligible rollover distribution paid from an employer-sponsored retirement plan to you is subject to a mandatory income tax withholding of 20%, even if you intend to roll it over later.

If you do roll it over and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have the payer transfer a distribution directly to another eligible retirement plan or to an IRA. Under this direct rollover option, the 20% mandatory withholding does not apply.

In general, if you are under age 59 ½ at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions unless an exception applies.

Rolling over a plan to an IRA or a Roth IRA may not be in the best interest of everyone. You could incur negative consequences like surrender charges and liquidity issues depending on the type of IRA product you select. A Focus Financial professional can help evaluate if this strategy is appropriate for you.

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