401K Rollover to Money Market

[taz]

I have a client that wants to pull money out of her 401 k and then roll over the rest to an annuity. The company will not do a partial withdrawl or transfer.
I was thinking of rolling it over to a money market account and then transferring a portion to the annuity. My question is if you open up a qualified Money market - will she be able to transfer a portion of it immediately.

 

[scagnt83]

I have a client that wants to pull money out of her 401 k and then roll over the rest to an annuity. The company will not do a partial withdrawl or transfer.
I was thinking of rolling it over to a money market account and then transferring a portion to the annuity. My question is if you open up a qualified Money market - will she be able to transfer a portion of it immediately.

Why will they not do a partial transfer? That doesn't seem correct.

 

[taz]

Bencor is the company and it is a Florida retirment system. The agent i was talking to said they would not. I am not 100% they won't. I know the client wants to take 20K of the 125K and roll the rest over to an FIA. I like the money market idea, because she has access to it and will only be taxed when taking withdrawls instead of all at once.
I am just making sure my theory will work.

 

[scagnt83]

Bencor is the company and it is a Florida retirment system. The agent i was talking to said they would not. I am not 100% they won't. I know the client wants to take 20K of the 125K and roll the rest over to an FIA. I like the money market idea, because she has access to it and will only be taxed when taking withdrawls instead of all at once.
I am just making sure my theory will work.

Are you sure its a 401k and not a 403b?

What "agent" did you talk to? Do you mean you spoke directly with Bencor?

What is the age of the client? Has she separated from service yet?

----------

Bencor only does government plans. According to their site they only do 403b, 401a, & 457 Plans. So you are most likely working with a 403b or 401a.

403b plans are a lot more prevalent than 401a plans.

If she cant move all of the funds that means that it is most likely a 403b and she has not separated from service yet. Or it could be that the annuity used is still in the surrender period.

Did the client initiate the idea of moving these funds or did you?


The reason I am asking these questions is because there is a lot more to this than what you seem to realize.


Technically, assuming that she can withdraw 100% of the assets (which is doubtful if she cant transfer 100% of them) she can do a rollover to a MM and Annuity.

But you seem confused about the Rollover process.

For it to be a Rollover she would withdraw the funds into a bank account.
Then she would have 60 days to deposit those funds (or that amount) into an IRA.

So if she wants to split it between the MM and Annuity, then there is no reason for all of the funds to go into the MM first. She can simply start a MM IRA and start an Annuity IRA, and deposit whatever % of the Rollover she wants into each one.


But if the MM idea was your idea.... then you are skating on thin ice imo. It sounds like the only reason you are pitching the MM is to create a way to capture the funds... so the major question (in that concern) is "is the MM suitable for her situation?".



But what worries me the most is that you dont seem to know exactly what type of account the funds are coming out of... and you dont seem to know much about this subject in general ... which could become a huge problem for this womans life savings if you screw up one of the many things that can be screwed up in a situation like this .... so I would suggest that you get all the info you can, and find an experienced agent to work this case with (if there are any possibilities with this prospect at all)

 

[DHK]

So if she wants to split it between the MM and Annuity, then there is no reason for all of the funds to go into the MM first. She can simply start a MM IRA and start an Annuity IRA, and deposit whatever % of the Rollover she wants into each one.


But if the MM idea was your idea.... then you are skating on thin ice imo. It sounds like the only reason you are pitching the MM is to create a way to capture the funds... so the major question (in that concern) is "is the MM suitable for her situation?".

This is a valid technique and tactic. I've done this hundreds of times myself. The money market is liquid with no sales charges or surrender charges. Just complete the appropriate forms from this plan and transfer to the new plan.

No big deal.

BTW, I'm assuming MM means money market ACCOUNT versus a MM FUND. MM Funds are securities based while mm accounts are done at banks or credit unions with FDIC/NCUA insurance.

 

[taz]

So if she wants to split it between the MM and Annuity, then there is no reason for all of the funds to go into the MM first. She can simply start a MM IRA and start an Annuity IRA, and deposit whatever % of the Rollover she wants into each one.


But if the MM idea was your idea.... then you are skating on thin ice imo. It sounds like the only reason you are pitching the MM is to create a way to capture the funds... so the major question (in that concern) is "is the MM suitable for her situation?".


(if there are any possibilities with this prospect at all)

If she deposits the check into her account and than rolls over to an IRA Annnuity and a IRA Money market than that would be 2 rollovers in a 12 month period. The last one would be fully taxable. I don't think that would be a good situation.

 

[Josh Landis]

I have a client that wants to pull money out of her 401 k and then roll over the rest to an annuity. The company will not do a partial withdrawl or transfer.
I was thinking of rolling it over to a money market account and then transferring a portion to the annuity. My question is if you open up a qualified Money market - will she be able to transfer a portion of it immediately.

Taz, the answer to your question is that it doesn't matter to the IRS whether or not you do a partial transfer or not...it all depends on the plan. Some plans allow it some do not. Based on your question, it seems that your client's plan does not allow partial transfers. However, I would contact them and tell them what you're doing, bc they may be thinking a true partial rollover where you want to transfer part of the 401k and leave part of it. You should be able to have a portion of the 401k transferred to the annuity policy and a portion transferred to an IRA account or money market account as long as the entire 401k balance is rolled over.

Josh

 

[scagnt83]

If she deposits the check into her account and than rolls over to an IRA Annnuity and a IRA Money market than that would be 2 rollovers in a 12 month period. The last one would be fully taxable. I don't think that would be a good situation.

Good point. New regs say you can only do one rollover per year. Forgot about that... I always avoid rollovers as much as possible.

But in your second post you said you would roll the money out of the MM... which would be 2 in one year as well...

Again, you need to find out what type of plan it is. It is most likely a 403b.

 

[Tahoe Ray]

Good point. New regs say you can only do one rollover per year. Forgot about that... I always avoid rollovers as much as possible.

But in your second post you said you would roll the money out of the MM... which would be 2 in one year as well...

Again, you need to find out what type of plan it is. It is most likely a 403b.

Direct rollover to mm IRA (1 per/yr) then trustee to trustee transfer (unlimited) to annuity IRA. Problem solved.

The indirect rollover (taking a check) can get messy. Plus you have to worry about 20% withholding.

Of course, if she's just going to spend the 20k, have her make a w/d from the existing plan then just roll the balance to the annuity.

 

[DHK]

If she deposits the check into her account and than rolls over to an IRA Annnuity and a IRA Money market than that would be 2 rollovers in a 12 month period. The last one would be fully taxable. I don't think that would be a good situation.

Rollovers and direct transfers are two completely different things.

In a rollover, the proceeds are payable directly to the individual participant. If the amount is not paid back within 60 days, it is a fully taxable distribution with penalties. You are limited to one rollover per calendar year.

In a direct transfer, the proceeds are payable to the new institution "FBO" (For Benefit Of) for your client. Your client may handle the check, but it is not payable to them. As long as they don't have "constructive receipt" of the funds, it is not a taxable event.