Why roll over traditional IRAs & SEP/IRAs to qualified plans (401(a)/(k)), 403(b), and 457(b) governmental plans)? many people are having to ask that question for the first time in their life. Gary McCarty of Allegiant Financial Group offers the following ideas.

1. Creditor Protection/ Bankruptcy (401(a)/(k) only)
In creditor issues, qualified plan assets can not be assigned or alienated (IRC Section 401(a)(13)).
IRA general creditor protections vary by states and usually not as good.
Qualified plan assets are exempt from federal bankruptcy proceedings.(IRA bankruptcy protection only up to $1,000,000).

2. Participant Loans
Can use assets for plan loans (not allowed in IRAs).

3. Life Insurance
Can use assets for larger life insurance premiums, particularly in profit sharing plans where certain rules (more than two-year old money can be used 100% for insurance; 5 year plan participants can use 100% of plan assets for life insurance, etc.) permit a larger portion of the assets for insurance premiums.
Life insurance is not allowed in IRAs.

4. Delay Required Minimum Distributions (RMDs) for Active Workers and Spouses in Death Distributions.
For non-5% owners in qualified plans, RMDs are not required until the LATER of age 70 ½ or actual retirement.
Also, if the surviving spouse in a death distribution is older than the decedent, and the object is to delay distributions as long as possible, it is ok to leave the assets in the plan until the decedent would have been 70 ½ had he/she lived, thereby further delaying the start of the RMD.
IRA RMDs must start at 70 ½, even if still working.
No RMD requirement only applies to 2009.

5. Exception to 10% Premature Distribution Penalty Tax
For qualified plans there is an exception to the 10% penalty tax for premature distributions provided you first attain the plan’s early retirement age (which can’t be earlier then age 55), THEN you separate from service. all distributions coming out of the plan in whatever manner are not subject to the 10% penalty.

6. Spousal Rollovers of Death Distributions
All the above reasons may also be relevant for spouses who receive Eligible Rollover Distributions of death distributions and who have the option of rolling over these assets into their own 401(a)/(k) and 457(b) governmental plan as well as to their own IRA.

Call Gary at 846-6080 ext 226 or stop by his office at 10401 N Meridian Street Suite 110 to learn more about this and other financial strategies for your cash and retirement accounts. Gary McCarty is a licensed Financial Services Representative with Indianapolis based Allegiant Financial Group. Allegiant specializes in Educators, Business Professionals and individuals developing Protected Growth Strategies and other financial services vehicles.

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