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401(k) rollovers: not always automatic

by on
in Small Business Tax

Q: My daughter is switching jobs in a few weeks. She's accumulated about $20,000 in her 401(k) plan. Does her employer have to automatically roll the money into a Roth IRA? I read something about that issue recently. G.P., Hoboken, N.J.

A: No. The IRS recently clarified that employers must automatically roll over retirement plan balances to traditional IRAs when the payouts are between $1,000 and $5,000. That automatic trigger took effect earlier this year (see 2/7/05 issue). Since her balance exceeds $5,000, she can choose to roll over the assets to an IRA or another qualified plan, but she must notify the plan administrator. Visit www.401khelpcenter.com for more details. Tip: In any case, she can't roll over qualified plan assets to a Roth IRA, only to a traditional IRA.

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