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Blogs - Ask Ed Slott
Clearing Up Conflicting Information About Rollovers, Qualified Plans
Sunday, September 16, 2012
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Ask Ed Slott: Your IRA Expert answers readers' questions about the rules regarding IRA rollovers involving qualified plans.

Ed Slott was named "The Best" source for IRA advice by The Wall Street Journal and called "America's IRA Expert" by Mutual Funds Magazine. He is a widely recognized professional speaker and educator specializing in retirement distribution planning, teaching both financial advisors and consumers how to best take advantage of our complicated tax code.

-- Have something you want to ask Ed? Send your questions to mailbag@irahelp.com

This week, IRA expert Ed Slott answers readers' questions about the rules regarding IRA rollovers involving qualified plans.

Question 1:

I have an IRA, originally rolled over to a managed asset account several years ago from a 401(k). I have a 457 account as well, which is not an IRA. I generally am not satisfied with them.

It was suggested that I should roll these over to a six-month IRA CD until next spring to save management fees with little return and to get a better handle on things after the election. I have read a lot on the web and found conflicting information about rollovers involving qualified plans and I am confused. It appears that if I roll them over even trustee-to-trustee that I would be able to do this only once a year with the anniversary being the date of the rollover.

Do both of these fall into that category so the one-per-year rollover rule will apply to these funds in perpetuity?

Many thanks,

A. Beauregard


The one-rollover-per-year rule applies to IRA distributions, but it does not apply to transfers between IRAs. In a transfer between IRAs, you do not have use or control of the funds. There is no limit on the amount of transfers you can do between IRAs. The web does have conflicting and often inaccurate information. We always recommend working with advisors who are educated in the IRA rules.

If your 457 plan is a governmental 457(b) plan, then the funds in that plan would be eligible for rollover to an IRA. Distributions from an employer plan are not subject to and do not count in the one-rollover-per-year rule.

Question 2:

I have an opportunity to buy a building in my IRA. My employer would rent the building, along with others. I am a signer on my employer's checking account, but have no ownership of the business. Is this a legal transaction?

Diane Stimburys


The prohibited transaction (PT) rules are very complicated. The result of a PT is a loss of all the money in your IRA, so extreme caution should be exercised. You are not allowed to conduct transactions between your IRA and certain disqualified persons or entities, such as yourself, your spouse, and others.

Assuming you are not related to your employer and are not an officer or manager of the company, it appears that you are not a disqualified person. However, there are self-dealing rules so if you benefit personally from the IRA investment, it would cause a PT.

Question 3:

Unfortunately, I had to make a withdrawal with penalties from my 401(k) to avoid foreclosure. Is this an exception to the penalties? If so, how would I be able to recoup the penalties paid? This was done in December 2011.

Thank you,

Anne Simpson


Unfortunately, there is no exception to the 10% early distribution penalty to prevent foreclosure. Additionally, that distribution is also subject to federal income taxes. While Congress had talked about changing the tax law to exempt 401(k) and IRA withdrawals from the 10% early distribution penalty when the funds were used to prevent foreclosure, it never became law.

-- Have something you want to ask Ed? Send your questions to mailbag@irahelp.com


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Posted by Martinez M | Friday, November 23 2012 at 5:53PM ET
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