Expanded Portability for IRAs
Provisions in the House- and Senate-passed pension bills
March 2006
Expands portability for IRAs, including direct rollovers to a Roth IRA from 457 plans, and other qualified plans for after tax money and rollovers of benefits received by non-spouse beneficiaries. It is likely that the final bill will include expanded portability for IRAs because there is general agreement that the rules need to be simplified so that individuals can more easily roll over assets to IRAs. Based on our experience, we believe that the two-step process that is currently required for rollovers from a 457 plan to a Roth IRA acts as a deterrent for participants.
Currently, participants wishing to roll over 457 funds to a Roth IRA must first roll over to a traditional IRA and then convert the traditional IRA to a Roth IRA. This two-step process is cumbersome and laden with paperwork. This provision will make the rollover a direct one-step process.
Another new provision would allow a non-spouse beneficiary who inherits funds from a 457 plan (while the 457 participant is active in the plan) to roll it over into an IRA instead of being required to take a cash payout and incur tax.