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Overcoming rollover fears and anxieties
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Dear Boomer Bucks,
In your article (on IRA rollovers), you stated …

"In the event you inherited money that's in a retirement plan, was the original owner (now deceased) born before 1936? In this case, the beneficiary would be eligible for special tax breaks."

Where would I find out what tax breaks I would be entitled to? And how are they determined?

My CPA knows nothing about this tax break. Is it something new? Thank you.

-- Brenda Jane K

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Dear Brenda Jane,
No, actually, it's something quite old. Lump-sum distributions of a qualified plan such as a 401(k) plan may be eligible for a special 10-year averaging tax computation for persons born before 1936, according to Stephan R. Leimberg and John J. McFadden, authors of "The Tools & Techniques of Employee Benefit and Retirement Planning."

CPA Ed Slott says this benefit passes on to beneficiaries of plan participants who would have been eligible to get them had they lived. This special provision does not apply to IRAs.

In their book, Leimberg and McFadden also state the following: "It should be noted that for a participant who attained age 50 before Jan. 1, 1986, not only the 10-year averaging calculation, but also the other favorable lump-sum rules of earlier law were grandfathered."

Armed with this information, your accountant should be able to figure out if the 10-year averaging calculation works out better for you than the distribution schedule you would otherwise follow.

Hello Barbara,
I have a 401(k) that I would like to roll over. I filled out the paperwork and had the plan trustee sign and approve it. The reason for wanting to not participate in the plan anymore is the fact that the company pulled out and will no longer contribute. Since we are not benefiting through the employer we would like to go with a financial institution we can be comfortable with.

The 401(k) company has stated that it is illegal to do a rollover if you're still employed by the company or if you're not 59½ years old.

How do we get our money away from this institution? Please help....

Thank you,
-- Jill

Dear Jill,
Ordinarily you can't roll money out of your company plan unless there's a triggering event (such as the onset of a disability or termination of employment). In some cases, if the plan permits, employees can take what's known as an in-service, nonhardship withdrawal distribution election. Sometimes the plan requires you to be 59½ to take this election.

Besides the fact that your company doesn't want to contribute to the plan, is there anything else about the plan that you dislike? If there are good investment options in the plan and the fees are reasonable, there's no reason why you shouldn't continue to make contributions to the plan. Your other tax-sheltered retirement vehicle option is the IRA, and you're limited to an annual contribution of $4,000 maximum this year ($5,000 if you're 50 or older), and this is probably not enough to provide for adequate retirement security. In a 401(k) you can sock away as much as $15,000 in 2006 ($20,000 if you're 50 or older).

Laws are in place to protect 401(k) plans, but unscrupulous firms in rare instances have fraudulently helped themselves to their employees' funds. Is that what you're worried about?

"Most companies these days use Fidelity or other established companies to manage the 401(k) plans," says financial planner Corcoran. "Jill may be worried about the company mishandling the money and may need reassurance about the protection of the money within the plan.

"The 401(k) assets are in a trust and are not subject to creditors, and a third party administrator handles the plan. ... I would only think about taking the money out in full if she really feels like the money might disappear."

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

If you have a comment or suggestion about this column, write to Boomer Bucks.'s corrections policy -- Posted: June 21, 2006
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