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What's wrong with this picture?

What's wrong with this picture?

Each day we have incoming calls from FRS members with questions about situations and decision points they would like to address. We are going to try and share these situations and solutions in a general, non-personal format.

This week one of our advisors took a call from a Special Risk employee who was retiring previous to age 52. His current advisors' recommendation was to immediately rollover the investment plan balance to his IRA after his separation of service. We have seen this advice come in situations where outside agents are not fully versed on the rules and regulations of making this kind of rollover at this time. Lets take a look at what was being missed.

If this employee does a rollover from the Investment Plan to an IRA, two things will happen.

  1. Withdrawals from the IRA will be restricted until age 59.5, if withdrawals are taken before then they will be subject to not only federal income taxes but also a 10% early withdrawal penalty.
  2. Once a rollover/withdrawal takes place from the Investment Plan the employee has now established a retirement date, meaning they can no longer return to FRS covered employment immediately. The employee is now subject to the waiting periods discussed in the previous blog post "Returning to FRS employment"

These are important points that MUST be considered before making these decisions. Please ask your important questions, we are here to help!