confused about rollover

[crabbypatty]

I have my paperwork. I want to rollover funds from an annuity plan I had with my old employer. I don't understand the annuity system, their fees are unclear and I don't think it's performed well. Also, I can't add to it since it's an old employer.

A few weeks ago before I got the rollover paperwork I switched funds. I know some MF's have early withdrawl penalties. But when I called, the annuity co. said this doesn't apply since their product is not a MF. I shouldn't be charged any fees for the rollover. Does that make sense?

Also, when I roll this into a traditional IRA, will I then be able to add to it? I'll be capped at 4 k a year divided between my Roth and the rollover traditional right? But the rollover amount won't count towards my 2007 allowance.

[kv968]

Your rollover will not be considered a contribution so you can still add to it. And yes, the $4000 max is of any combination between the Roth and the rollover.

One thing you should make sure of also is that you're doing a direct transfer or "trustee-to-trustee" transfer when moving the money. That way the funds will not be distributed to you but go directly to the company where your rollover IRA is established.

If you do an indirect rollover, where the annuity plan from your old employer writes you a check, they'll withhold a mandatory 20% income tax withholding. You'll have 60 days to deposit the remaining funds into a rollover IRA and if you can't come with the extra 20% that was withheld in that same 60 days, that amount will be treated as a taxable distribution.

In other words, make it easy on yourself and make sure you're doing a direct transfer.

[creditcardfree]

My husband had an annuity and because we took money to do a rollover before having owned it for 8 years ( we had it 6) we paid a penalty. It is possible the surrender charge is no longer in effect because you have owned it for a period of time. I would call one more time and ask about any surrender charge or fees that they will deduct before sending the money to your ira. That way you are well informed and there will be no surprises.

There will be no taxes or penalties to roll the money to a traditional ira. And you are correct that you can add to your traditional ira if you want to. Some people chose to keep their rollover money seperate from the traditional account they contribute to. It's your choice.

Yes, you can only contribute $4k for 2007 and can divide it between the roth and the traditional. Correct, the rollover doesn't not count towards your yearly contribution.

Good job in getting this taken care of. Sounds like you know what you are doing!!

[LuxLiving]

Crabbypatty -

I would be thinking about where the money came from in the initial account. Was it money you contributed to your own retirement and if so was it pre-tax monies?

If it was money that your employer put in there then it is likely that NO TAXES have been paid. If this is the case then when you rollover, you may want to think carefully about adding monies to it.

Here's our situation and how we handled it:

THE Hubster's employer put money aside for him in a profit-sharing plan. When employer went bankrupt we had a certain amount of time to rollover or cash out. We rolled over to a Rollover IRA. We make NO additional contributions to this account as it would be a nightmare later on when withdrawing determining which monies had already been taxed and which hadn't. This rollover IRA has had no taxes paid on it so when we either convert or begin withdrawals we will have to pay taxes on it.

To keep matters simpler we started him a Roth IRA and contribute after-tax money into it.

Pre-tax and after-tax monied accounts are best kept separate IMHO.

Hope this helps.

[crabbypatty]

Thanks, those are things I hadn't thought about.

It was a tax sheltered annuity so I imagine that no taxes were paid on it. I don't think there was any company match/contribution. I left this employer over 5 years ago so the details are fuzzy.