In most situations, it is more likely that an individual who intends to roll over 100% of the distribution proceeds will make a direct rollover. However, there are some situations where election of the indirect rollover may be preferable:
To simplify rollovers to several different funding vehicles, the individual could receive the proceeds, then within the 60-day period, write personal checks to the various financial organizations selected to receive the rollovers. Always check first with the distributing vendor or trustee since some will make the distributions to multiple funding vehicles. The regulations permit distributions to be divided and directly rolled to more than one eligible funding vehicle, but they do not require it.
The participant may have a compelling reason to use the proceeds for the 60-day period.
For example, funds may be needed as closing costs on the purchase of a replacement home before the proceeds from the first home have been received, so long as such proceeds will be available within the 60-day period. Or, a short-term investment opportunity or business venture may present itself. The 60-day period allows the short-term use of the proceeds for other purposes.
If the participant wishes to keep a portion of the rollover for personal use and roll over the remaining portion to a new funding vehicle, the direct rollover method is available as the proposed regulations specifically state that the payer cannot require an “all or nothing” rollover. In other words, the payer is required to divide the distribution between the participant and the selected rollover vehicle if so directed.
Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.
- Log in to post comments