Question

Your client lost her job several months ago and is now eligible to receive a lump sum distribution of her qualified profit sharing plan accumulation. which strategies would accomplish her goal of moving this accumulation to a new employer's profit sharing plan while retaining its status as "qualified" money?

a, doing an indirect rollover using an existing ira
b. doing a direct rollover to an existing ira establishing and using a conduit ira
c. doing a direct transfer to the new employer's plan

Answer 1

To move a qualified profit sharing plan accumulation to a new employer's plan while retaining its qualified status, the best option is to do a direct transfer to the new employer's plan. This direct transfer maintains the tax-deferred status and avoids potential penalties.

Step-by-step explanation:

The most effective strategy to move the accumulation to a new employer's profit sharing plan while keeping it qualified is c. doing a direct transfer to the new employer's plan. This approach ensures the funds retain their tax-deferred status and avoids any potential tax penalties or mandatory withholding associated with indirect rollovers.

Option a, which involves doing an indirect rollover using an existing IRA, might result in taxes and penalties if not executed properly, within 60 days. Option b, involving a direct rollover to an existing IRA establishing a conduit IRA, can be a viable option but could be more complicated and might not always be necessary if transferring directly to the new employer's plan is possible.

Defined contribution plans, such as 401(k)s and 403(b)s, allow for this portability and flexibility, ensuring that employees can transfer their retirement savings across different employers without losing their tax-advantaged growth.