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Retirement Rollover Plans can be Tough, but Don't Worry!

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Retirement Rollover

A tax deferred retirement rollover occurs when you transfer assets from one eligible retirement plan and contribute it to another eligible retirement plan, such as an IRA. When handled correctly, doing a rollover is the best way to move money between retirement accounts. But when not handled correctly, taking money out of a retirement plan can be expensive.

Withdrawing money from a traditional retirement account, before you reach the retirement age of 59 ½ is a bad idea. That is because non-qualified withdrawals are usually subject to income tax, as well as a 10% early withdrawal penalty.

When you take a retirement distribution from an eligible retirement plan in your name, it’s always subject to a mandatory withholding of 20%, even if you intend to roll it over in time. With direct rollovers, there is never any with-holdings taken out.

Doing a rollover is a great idea in that it allows you to take money out of a retirement plan, such as a 401(k), 403(b), 457 or an IRA and maintain the tax deferred status of the funds.

An IRA is All About You!


Your IRA belongs to you. It’s not tied to a company you work for, and it sticks with you through retirement, so that you have more flexibility with when and how you contribute to it.


You will have access to a broad range of investment options, not just what is offered in an employer retirement plan.


You can transfer other retirement accounts into an IRA, consolidating your savings into one spot.


A 401K is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.

With a 401K you can control how your money is invested. Most plans offer a spread of mutual funds composed of stocks, bonds and money market investments.

There are complex rules about when you can withdraw your money and costly penalties for pulling funds out before retirement age.

403(B) Tax Sheltered Annuity Plan

A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities. It's similar to a 401(k) plan maintained by a for-profit entity. Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary into individual accounts. The deferred salary is generally not subject to federal or state income tax until it's distributed. However, a 403(b) plan may also offer designated Roth accounts. Salary contributed to a Roth account is taxed currently, but is tax-free (including earnings) when distributed.

Eligible employers are a:

  • public school, college, or university,

  • church; or

  • charitable entity tax-exempt under Section 501(c)(3) of the Internal Revenue Code

Pros and Cons

  • Flexibility in contributions

  • Investment options are limited to those chosen by the employer

  • may have high administrative costs

  • optional loans and hardship distributions add flexibility for employees.

457(B) Deferred Compesation Plans

If you’re an employee of a city, county, township, park board, water district of similar entity, your employer may offer a tax-exempt savings benefit know as a government 457(b) deferred compensation plan.

These plans accept payroll-deducted contributions for participant-directed investing and are intended to help public employees like you meet long term objectives, such as generating retirement income.

As a 457(b) plan participant, you contribute salary reductions – or “deferrals” – which are placed in a participant-directed account. Contributions are limited to an annual maximum dollar amount, as established under the Internal Revenue Code (IRC)

Once in your account, you have to decide where you want to invest your contributions from options selected by your employer, the plan sponsor. Investing involves market risk, including possible loss of principal.

You may get significant advantages for participants in a 457(b) plan:

  • Your contributions and any earnings to a 457(b) plan are tax deferred

  • Your money has the chance to potentially grow with the power of time and compounding

  • You may be eligible to take a tax credit (Saver’s Credit) for elective deferrals contributed to your account

  • You may take an unforeseeable emergency withdrawal, as long as certain qualifications are met

  • You may become eligible for a loan at competitive rates

  • With certain exceptions, your account is protected by law from anyone, including your employer, taking control of your assets

You will pay ordinary income tax when and as you withdraw from your plan account.