Rolling Over Your Defined Benefit Plan

Jon Galane
3 Min

A defined benefit plan promises a specified monthly benefit at retirement. A defined benefit plan can be rolled over to a self-directed plan, but typically only if you are no longer an active participant in the plan. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement.

Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service — for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance.

When you roll over a retirement plan distribution, you generally don’t have to pay tax on it until you withdraw it from the new plan. By rolling over, you are saving for your future and your money continues to grow tax-free.

If you don’t roll over your distribution, you will pay tax on the amount received (other than qualified Roth distributions) and possibly an additional tax on early distributions.Keep in mind that the portion of a distribution from a traditional IRA or pre-tax retirement plan account that is not rolled over is generally taxable in the year of the distribution.

If you are still employed by the plan provider, you will need to check with your plan administrator to see if the plan allows for “in-service” distributions, which allow employees to withdraw funds from their workplace retirement plan without penalty. If the answer to that question is yes, you would be able to perform a direct rollover to a self-directed IRA. By moving funds to your self-directed IRA, you can take advantage of greater choice in investments.

Generally, to roll over your retirement plan or IRA distribution:

  • Ask the plan administrator or IRA trustee to transfer the amount to another plan or IRA, or
  • Have the distribution paid to you and contribute it within 60 days to another eligible retirement plan.

If the distribution from the qualified plan or IRA is paid to you, you have 60 days from the date of receipt to roll it over to another qualified plan or IRA. If you make a tax-free rollover of a distribution from an IRA, you generally cannot make another rollover from the same IRA within a one-year period. Y

ou also cannot make a rollover from the IRA to which the distribution was rolled over. If you receive an eligible rollover distribution from your plan, your plan administrator must provide you with a notice informing you of your rights to roll over the distribution and must facilitate a direct rollover to another plan or IRA.

Contact Mountain West to roll over your defined benefit plan to a self-directed IRA and take advantage of the many allowable investments self-directed IRAs afford you.

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