Help Retirees Make the Most of Their Next Chapter: Learn How to Roll Over QRP Assets to an IRA with Confidence
By Lisa Haberman, Ed.D., QKA, ChFC, CLU
Retirement marks a major life transition—and with it comes a series of financial decisions that can shape your clients’ future. One of the most important choices individuals will face is what to do with money in a qualified retirement plan (QRP), such as a 401(k) or 403(b) plan. For many retirees, rolling those assets into an individual retirement account (IRA) offers flexibility, control, and long-term benefits.
Why Consider a Rollover?
Rolling over QRP assets to an IRA can simplify managing finances after retirement. Instead of juggling multiple accounts from past employers, retirees can consolidate their savings into one account. This makes it easier to manage investments, track performance, and plan future distributions.
Is it Important to Identify the Type of Assets Being Rolled Over?
Retirees should confirm what type of QRP assets are being rolled over—either pretax assets, after-tax assets, or designated Roth account assets. The type of asset will determine what type of IRA the assets may be rolled to. For example, individuals may roll over non-Roth QRP assets to a Traditional, Roth, or possibly a SIMPLE IRA, while designated Roth account assets may be rolled over only to a Roth IRA.
Does Timing Matter in the Year of Retirement?
The calendar year that an individual retires is a critical window for making rollover decisions. It is important for retirees to understand the rules regarding their QRP distributions, deadlines, and how these provisions affect when required minimum distributions (RMDs) must be taken.
Do Individuals Need to Take an RMD Before Completing a Rollover?
According to certain IRS rules and Treasury regulations, RMDs cannot be rolled over to another retirement account, as they are not eligible under federal tax law. So individuals who are age 73 or older and have retired from the employer sponsoring their plan will be required to take an initial RMD from their QRP before rolling over the remainder of the account balance to an IRA. Failing to do so could result in an excess accumulation penalty tax. It is also important to know whether the QRP allows partial distributions or only permits rollovers of the entire account balance.
Are There Tax Implications?
It is crucial to distinguish between direct and indirect rollovers, as each method carries its own tax consequences, deadlines, and risks that can significantly affect an individual’s retirement savings strategy.
Final Thoughts
Rolling over QRP assets to a Traditional or Roth IRA is a smart move for many retirees—but it is not a one-size-fits-all option. By understanding the specific rules of the QRP, staying aware of deadlines, and understanding the differences in a direct or indirect rollover, your clients can sidestep common pitfalls and ensure a smoother transition for their retirement assets. Encourage your clients to take time to understand their options, consult with a financial advisor, and make a plan that supports their retirement goals.
