Complex: Leaving job, so 401(k) has to be rolled into IRA

[sir_guy]

Hi, there:

My divorce lingers on.

Meanwhile, I'm changing jobs. My company says the company we use for 401(k)'s (AUL) insists on rolling my 401k over into an IRA. They need a form signed by the NJ, to do this.

The NJ's lawyer is pushing back, claiming that there is a tax penalty if it is an IRA that is not there for a 401k. I'm leaving the company to do contract work, so it can't stay in a 401k anyway, so I don't know why there would be push-back.

Does anyone have any thoughts regarding this swamp of a mess?

[pharoeandisis]

If you have a qualified plan such as a 401k and you have a "triggering event", i.e. separation from service, you can do a direct rollover into another eligible retirement plan such as a Traditional IRA without any tax liabilities. The movement fund is tax reportable, but no taxes or penalties unless you pocket any of the assets. To take a distribution from a qualified plan, it may require spousal consent. Contact your plan administrator or employer. Also obtain Tax Notice 402(f), should you be provided with a distribution form that allows you to do a direct rollover into an IRA.

Go educate yourself, ask questions. The plan administrator has a fiduciary obligation to provide you with facts and options.

What penalties are you talking about? Why the push back from the attorney?

There is one possibility, a qualified plan can allow for a distribution due to a QDRO and your ex-spouse would not have to pay a 10% early withdrawal penalty. This is not an option for an IRA. But why raid the retirement assets when the assets can be rolled over or transferred into the name of the ex-spouse without tax and penalties?

Oh, I get it. To pay the attorney.

[anonymous guest]

No, its pretty easy to do.

There is no penalty if you do a direct roll over. That is, get the current 401K to send a check to your new account. Sometimes they will send you a check, and you have 30 or 60 days (I forgot which) to deposit it without getting a penalty. The only issue with this is they may take out witholding.

I'd recommend Vanguard. They are low cost, have good online tools and a decent selection of low cost, no load funds.

[sir_guy]

Thanks for the answers, I also got similar answers from the company.

Yes. to pay for atty's is the idea. And she's pushing back on signing, I assume for the same core reason. Oh well, and so it goes.