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Rolling Over Your Employer Retirement Plan Assets into an IRA

Changing Jobs or Retiring
Preserve the tax-favored status of your employer retirement plan savings by rolling over the money to an IRA. The best way to roll retirement plan dollars to an IRA is via a "direct rollover." By rolling over your retirement savings from an employer-sponsored plan directly to an IRA, you will avoid the mandatory 20% income tax withholding as well as any early distribution penalty tax. Contact your employer plan administrator or IRA Services at Star One for instructions on how to move your retirement funds.

Rollovers From an Employer Plan
An individual may roll over funds from an employer-sponsored retirement plan to an IRA. An eligible employer-sponsored retirement plan is an IRC Sec. 401 (a) or 403(a) qualified retirement plan (QRP), a tax-sheltered annuity (403(b) plan), or a governmental 457(b) plan. Individuals may either directly or indirectly roll over assets from an employer retirement plan to an IRA.

Direct Rollover
A direct rollover is a rollover distribution that is paid directly to another employer retirement plan or IRA for the benefit of the individual taking the distribution. The mandatory 20% withholding that generally applies to retirement plan rollover distributions does not apply if the distribution is directly rolled over from the retirement plan to the IRA.

Indirect Rollover
An indirect rollover occurs when the individual receives a distribution (e.g., a check is payable to the employee) from an employer retirement plan and, within 60 days, rolls the distribution into an IRA or another qualified employer retirement plan. The employer is required to withhold 20% of the distribution as a prepayment of income tax.

An individual may roll over 100% of the rollover distribution amount, including the 20% that the administrator of the plan withheld. With that option, an individual will have to make up the 20% tax withholding out of their pocket. An individual may choose to roll over only the 80% actually received; however, the withheld 20% of the distribution should be included in their taxable income for the year. If they are under age 59½, they may incur a 10% early distribution penalty on the 20% withholding as well.

Beneficiary Rollover
Non-spouse beneficiaries may directly rollover inherited employer-sponsored retirement plan assets to inherited IRAs. (Consult a tax advisor with questions regarding these types of transactions.) A spouse beneficiary has the added benefit by of treating the inherited IRA funds as their own, and can transfer or rollover the funds to their own IRA plan.

Consider Your Options

  • Rollover to a Traditional IRA
    Any pre-tax retirement savings that is rolled over to a Traditional IRA is not subject to income taxes, nor does it trigger tax penalties for an early withdrawal. Assets remain in a tax-deferred plan with a Traditional IRA. 
     
  • Rollover to a Roth IRA
    There is an option to rollover employer-sponsored retirement plan assets to a Roth IRA instead of a Traditional IRA. With this transaction, an individual is converting pre-tax retirement savings into after-tax savings. This transaction is not a tax-free transaction; the taxable amount of your plan rollover is included in income for the year. However, once the money is in a Roth IRA, it is never taxed again. And if an individual takes a qualified distribution from the Roth IRA, any earnings that have accrued can be taken out tax-free. If an individual has stopped working and has earned less income for the year, they might be in a lower tax bracket and rolling over pre-tax retirement plan assets to a Roth IRA may be a good move in such a year.

Be sure to seek financial or tax advice before you rollover assets into another plan to ensure you have considered your best options.

What you need…

...to rollover Employer Sponsored Retirement Plan(s) to a Traditional IRA:

  • Your Star One membership number (non-members  for membership.)
  • Your past employer’s name and address (needed for employer plan conversions only).
  • Your beneficiary information (SSN, birth date & contact information).
  • Your former employer's plan instructions to rollover funds.
  • A copy of your most recent employee benefits statement for reference.

...to rollover Employer Sponsored Retirement Plan(s) to a Roth IRA:

  • Your Star One membership number (non-members  for membership.)
  • Your past employer’s name and address (needed for employer plan conversions only).
  • Your beneficiary information (SSN, birth date & contact information).
  • Your former employer's plan instructions to rollover funds.
  • A copy of your most recent employee benefits statement for reference.

Applications

  • Click on the highlighted link to complete the “Traditional IRA" or “Roth IRA" documents in the IRA Service Center.  Be sure to click on the "Move assets from an employer-sponsored retirement plan" radio button to begin.  Follow the prompts and answer all questions completely.
  • Upon completion, print the documents, review, sign and mail them to Star One Credit Union, PO Box 3643, Sunnyvale, CA, 94088-3643 ATTN: IRA Services, or take them to a Star One Branch for processing. 
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