Rules for Rollover 401(a) to IRA

A 401A plan is similar to the more commonly used 403B plan provided to school district employees to help save toward retirement. Unlike a 403B plan, the 401A plan is completely controlled by the employer. Contributions are made on behalf of the employee with asset investment decisions made by the employer. A tax-free rollover can be conducted for a 401A following certain IRS guidelines.

In order to conduct the rollover, the employee must no longer be working for the company where the 401A plan exists. When a company establishes a 401A plan, it is able to designate a vesting schedule, which means that employees must meet minimum years of service to own the assets completely and be "100 percent vested." If an employee is not 100 percent vested, only part of the 401A assets will be moved into a self-directed IRA. Unused sick leave pay may be contributed to the 401A plan and rollover.

Before a 401A participant can rollover the money, any required minimum distributions must be taken. If you have reached age 70 1/2, the IRS mandates a percentage of assets be distributed from retirement plans annually. If you conduct the rollover prior to taking the money out, the IRS considers it an excess contribution penalizing it six percent annually for every year it remains in the account. If you don't distribute it for the entire year, the amount is further penalized 50 percent of the value.

The IRS allows assets that are in a 403B plan from one employer to be rolled into the plan of another employer who offers a 403B and allows the "roll-in." In fact, some providers allow a 401k plan to roll into a 403B plan. However, the assets in a 401A plan are not permitted to roll into a 403B plan. This is an IRS regulation and not a plan provider rule. The only option available to a 401A participant is to roll the money into a self-directed IRA.

The IRS a allows you to conduct one rollover per twelve month period for any retirement asset, including a 401A. There are two types of rollovers, a direct and indirect. While the direct is a simple process where the 401A administrator sends the money to the new IRA custodian, the indirect rollover sends the plan participant a check. This check must be rolled into a rollover IRA within 60 days to prevent penalties.