Generally, a 401k participant may begin to withdraw money from his or her plan after reaching the age of 59 without penalty. The Internal Revenue Code imposes severe restrictions on withdrawals of tax-deferred or Roth contributions while a person remains in service with the company and is under the age of 59. Any withdrawal that is permitted before the age of 59 is subject to an excise tax equal to ten percent of the amount distributed (on top of the ordinary income tax that has to be paid), including withdrawals to pay expenses due to a hardship, except to the extent the distribution does not exceed the amount allowable as a deduction under Internal Revenue Code section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).[11] Amounts withdrawn are subject to ordinary income taxes to the participant.
Not surprisingly, states with higher life expectancies and higher costs of living (like Hawaii) require the highest retirement savings. However, regardless of where they live, most Americans are not saving enough in order to fund their retirement. Some think that the solution could be making saving mandatory, with the government stepping in to divert a certain percentage of an individual’s earnings to a savings or retirement account. Others believe taxing the rich more is the way to go in order to strengthen Social Security, which provides the primary source of retirement income for many Americans. In addition, focusing new policies on developing affordable housing for the elderly could alleviate financial pressures for retirees.
“The ability to rollover retirement assets can lead to a simpler retirement strategy with more control over investment choices. If an individual has had multiple employers throughout their working career, he or she most likely have multiple retirement accounts. It can become easy to lose track of those accounts. Rolling those accounts over to another IRA or potentially even a Roth IRA can drastically simplify an overall portfolio. While funds are in a 401(k)/403(b), investment options are limited to what the company has approved. Once a rollover is completed, a client has access to a much larger pool of investment options.” — Ben Koval, Financial Planner, Decker Retirement Planning
Wherever you are in your tax planning process, just know that you’re not alone. The rules around required minimum distributions, Charitable IRA rollovers, qualified charitable distributions (QCDs) and planned gifts sound complicated to a lot of people, but rest assured that you’ve come to the right place to find out what they are, and how they can benefit you. Read on to learn more, and then consult with your tax advisor for advice on your specific tax situation.
Example: For the 2018 tax year, a couple plan to file jointly. They are both age 75 and anticipate adjusted gross income (AGI) of $125,000, including $60,000 in RMDs. Although they will not itemize deductions, they still plan to make charitable contributions totaling $5,000. They will report federal taxable income of $98,400 ($125,000 AGI, less a standard deduction of $26,600 — $24,000 plus an additional standard deduction of $1,300 each for being over 65), resulting in federal tax is $13,527.
Once an IRA rollover is completed, however, the resulting account is very similar to a traditional IRA. They can utilize the same investment options and providers with the same contribution limits and eligibility requirements. While rollover IRAs have unique rules for setup, the rules and deadlines that apply after an account are established are the same as traditional IRAs.

To complete an IRA rollover, you must not have done another rollover in the past 12 months. You must also be eligible to move money from your current retirement account. This typically means that you must have separated from employment at the company providing your retirement benefits and are no longer eligible to participate in their retirement plan.
In a direct transfer, account holders who want to move money work through their new provider rather than the old one. When setting up their new account, they have the new custodian initiate a transfer request, which moves the account directly from the old custodian. Using a direct transfer, the old custodian doesn’t always even have to sell all the investments within an account — they can sometimes transfer the account with the current portfolio intact.
Unlike defined benefit ERISA plans or banking institution savings accounts, there is no government insurance for assets held in 401(k) accounts. Plans of sponsors experiencing financial difficulties sometimes have funding problems. However, the bankruptcy laws give a high priority to sponsor funding liability. In moving between jobs, this should be a consideration by a plan participant in whether to leave assets in the old plan or roll over the assets to a new employer plan or to an individual retirement arrangement (an IRA). Fees charged by IRA providers can be substantially less than fees charged by employer plans and typically offer a far wider selection of investment vehicles than employer plans.
Another item to be aware of with rollover IRA contributions is that this may restrict your ability to move your account in the future. If, for example, you do a 401(k) rollover to IRA and later contribute to that rollover IRA, you won’t be able to roll your IRA back into a 401(k) at some point in the future. This is covered further in the 401(k) Rollover to IRA section below.
If you’re no longer employed by the employer maintaining your retirement plan and your plan account is between $1,000 and $5,000, the plan administrator may deposit the money into an IRA in your name if you don’t elect to receive the money or roll it over. If your plan account is $1,000 or less, the plan administrator may pay it to you, less, in most cases, 20% income tax withholding, without your consent. You can still roll over the distribution within 60 days.
The annual contribution percentage (ACP) test is similarly performed but also includes employer matching and employee after-tax contributions. ACPs do not use the simple 2% threshold, and include other provisions which can allow the plan to "shift" excess passing rates from the ADP over to the ACP. A failed ACP test is likewise addressed through return of excess, or a QNEC or qualified match (QMAC).
Income taxes on pre-tax contributions and investment earnings in the form of interest and dividends are tax deferred. The ability to defer income taxes to a period where one's tax rates may be lower is a potential benefit of the 401(k) plan. The ability to defer income taxes has no benefit when the participant is subject to the same tax rates in retirement as when the original contributions were made or interest and dividends earned. Earnings from investments in a 401(k) account in the form of capital gains are not subject to capital gains taxes. This ability to avoid this second level of tax is a primary benefit of the 401(k) plan. Relative to investing outside of 401(k) plans, more income tax is paid but less taxes are paid overall with the 401(k) due to the ability to avoid taxes on capital gains.
“The ability to rollover retirement assets can lead to a simpler retirement strategy with more control over investment choices. If an individual has had multiple employers throughout their working career, he or she most likely have multiple retirement accounts. It can become easy to lose track of those accounts. Rolling those accounts over to another IRA or potentially even a Roth IRA can drastically simplify an overall portfolio. While funds are in a 401(k)/403(b), investment options are limited to what the company has approved. Once a rollover is completed, a client has access to a much larger pool of investment options.” — Ben Koval, Financial Planner, Decker Retirement Planning
Not surprisingly, states with higher life expectancies and higher costs of living (like Hawaii) require the highest retirement savings. However, regardless of where they live, most Americans are not saving enough in order to fund their retirement. Some think that the solution could be making saving mandatory, with the government stepping in to divert a certain percentage of an individual’s earnings to a savings or retirement account. Others believe taxing the rich more is the way to go in order to strengthen Social Security, which provides the primary source of retirement income for many Americans. In addition, focusing new policies on developing affordable housing for the elderly could alleviate financial pressures for retirees.
You can open a rollover IRA at banks, brokerage firms or mutual fund companies. When considering providers, it’s best to consider several factors based on your individual investment strategy and other needs. Some providers stand out with cost-efficient investment options, low-cost trading, individual guidance or other financial services in addition to rollover IRAs.
Not surprisingly, states with higher life expectancies and higher costs of living (like Hawaii) require the highest retirement savings. However, regardless of where they live, most Americans are not saving enough in order to fund their retirement. Some think that the solution could be making saving mandatory, with the government stepping in to divert a certain percentage of an individual’s earnings to a savings or retirement account. Others believe taxing the rich more is the way to go in order to strengthen Social Security, which provides the primary source of retirement income for many Americans. In addition, focusing new policies on developing affordable housing for the elderly could alleviate financial pressures for retirees.
A charitable IRA rollover is a qualified charitable distribution from a retirement account to a charitable organization. One rationale for making such a distribution lies in the benefits the donor can receive. These benefits can be significant in both tax savings and impact on a charity. This is especially true when a person is required to take a distribution from their retirement account.
For accumulated after-tax contributions and earnings in a designated Roth account (Roth 401(k)), "qualified distributions" can be made tax-free. To qualify, distributions must be made more than 5 years after the first designated Roth contributions and not before the year in which the account owner turns age 59, unless an exception applies as detailed in IRS code section 72(t). In the case of designated Roth contributions, the contributions being made on an after-tax basis means that the taxable income in the year of contribution is not decreased as it is with pre-tax contributions. Roth contributions are irrevocable and cannot be converted to pre-tax contributions at a later date. (In contrast to Roth individual retirement accounts (IRAs), where Roth contributions may be re characterized as pre-tax contributions.) Administratively, Roth contributions must be made to a separate account, and records must be kept that distinguish the amount of contribution and the corresponding earnings that are to receive Roth treatment.
Unlike defined benefit ERISA plans or banking institution savings accounts, there is no government insurance for assets held in 401(k) accounts. Plans of sponsors experiencing financial difficulties sometimes have funding problems. However, the bankruptcy laws give a high priority to sponsor funding liability. In moving between jobs, this should be a consideration by a plan participant in whether to leave assets in the old plan or roll over the assets to a new employer plan or to an individual retirement arrangement (an IRA). Fees charged by IRA providers can be substantially less than fees charged by employer plans and typically offer a far wider selection of investment vehicles than employer plans.
Unlike the Roth IRA, there is no upper income limit capping eligibility for Roth 401(k) contributions. Individuals who find themselves disqualified from a Roth IRA may contribute to their Roth 401(k). Individuals who qualify for both can contribute the maximum statutory amounts into either or a combination of the two plans (including both catch-up contributions if applicable). Aggregate statutory annual limits set by the IRS will apply.[10]

According to the Council of Foundations, “such distributions do not count as qualified distributions from IRAs under these special rules, donors will have to first recognize those distributions as income. They then must calculate their charitable deduction according to the general rules pertaining to percentage limitations and itemized contribution reductions discussed below.”
The IRA Rollover was born out of The Pension Protection Act of 2006 (PPA). It was important because it could help older taxpayers satisfy their required minimum distribution (RMD) requirements while obtaining their charitable giving goals. It permitted individuals to roll over up to $100,000 from an individual retirement account (IRA) directly to a qualifying charity without it being included in their gross income. The Act expired and was extended several times until it was made permanent in 2015.
If your custodian reported the transaction incorrectly, and you handoff the documentation to your tax professional without explaining the transaction to them, it could get reported on your return incorrectly. To make sure you don't pay tax on an IRA rollover or transfer, carefully explain any IRA rollover or transfer transactions to your tax preparer, or double-check all documentation if you prepare your own return.
Account owners must begin making distributions from their accounts by April 1 of the calendar year after turning age 70 1/2 or April 1 of the calendar year after retiring, whichever is later.[15] The amount of distributions is based on life expectancy according to the relevant factors from the appropriate IRS tables.[16] For individuals who attain age 70 1/2 after December 31, 2019, distributions are required by April 1 of the calendar year after turning age 72 or April 1 of the calendar year after retiring, whichever is later.[17]
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