Rollover IRA Eligibility

When you leave your employment and your employer sponsored a retirement plan that pays lump sums, you are eligible to open a Lord Abbett rollover IRA account. This IRA rollover does not have to immediately follow severance. Many participants leave their accounts with their former employers because it was too much of a hassle to move it or because they like their former employer's plan investment offerings. If you have an account balance greater than $5,000 and leave employment, distributions do not have to begin until you attain the retirement age under the terms of the plan, generally age 65. In addition, some plans also allow participants who attain a certain age, 59½, for example, to withdraw all or part of their account while they continue to work.

Depending on the source of the funds or potentially a participant's election, the IRA rollover could either be a traditional IRA rollover or a Roth IRA rollover. A Roth IRA rollover is available if you had a designated Roth account under a 401(k), 403(b) or 457(b) governmental plan with your former employer. In addition, all rollover eligible recipients, including beneficiaries inheriting retirement plan accounts, could choose to convert all or part of what would otherwise be a traditional IRA rollover to a Roth IRA. (See our Roth Conversion Resource Center.)

Most IRA rollovers are funded directly from the former employer's retirement plan to the IRA custodian and, until recently, have generally been traditional IRA rollovers. We have a write-up on the "Rollover" home page describing the procedures you could follow to obtain a smooth transition from the qualified plan to an IRA rollover.

If you take possession of your qualified plan assets, the rollover can still be completed, but it must be done within 60 days of receiving the funds. Any taxable proceeds you received before completing the rollover are subject to mandatory 20% federal income tax withholding, so in order to complete a 100% rollover within the 60 days, you would need to come up with the cash to replace the withholding. Not replacing the withholding would subject that portion of the distribution to income tax and a 10% penalty if you were under age 59½, unless an exception such as disability applied. If the distribution you received directly was from a designated Roth account, the proceeds can also be rolled over to a Roth IRA rollover. However, if you wanted to roll the entire proceeds to another designated Roth account within you new employer's retirement plan, you must have the proceeds sent directly to that plan. If you take possession of your designated Roth account, only the earnings portion of the distribution can be subsequently rolled over to another company's retirement plan. These restrictions do not apply when opening a Roth IRA rollover.

A deceased participant's spouse may roll over their late spouse's account to their own rollover, and a non-spouse beneficiary may roll over the account he/she inherits to an IRA account called a decedent IRA (not their own existing IRA), as a decedent IRA account may only contain the inherited funds and requires distributions to begin in the year following death or the decedent IRA must be distributed within five years following the former participant's death.

You should consider a Lord Abbett rollover IRA if you:

• Would like to avoid current taxation of your pension distribution;
• Would like to preserve the full amount of your distribution as there's no withholding on direct rollovers;
• Would like to continue tax deferral started within the qualified plan; and/or
• Would like to preserve the tax free potential offered via the designated Roth account started with your former employer.

An IRA rollover may involve the application of fees and charges. There may also be fees, expenses, taxes, and penalties associated with early IRA withdrawals.