If you are the Plan Sponsor of a 401(k) Plan, you may receive questions from your employees concerning rollovers into your Company 401(k). What are rollovers? Are they allowed? Are there specific rules regarding rollovers into your Plan?
Employees may have funds in an account with another 401(k) Plan. This usually occurs when employees move jobs. It is attractive to them to move all the funds into one Plan so they can better manage the investments related to those funds and, potentially, to reduce overall fees charged. This means that they will want to move the funds from another Plan into yours. In most cases this is allowed and a reasonable request. You should verify with your service provider that rollovers into the Plan are allowed and ask for the procedure to make this happen. First, the requestor (employee) must already be eligible and enrolled in your Company 401(k) Plan. If they are not currently enrolled, they should go through the procedure to verify eligibility and then enrollment. After that, there usually is a form the employee must complete indicating their desire to rollover funds, the source of the funds and other important information to set-up the transfer. You may need to approve the rollover into the Plan but in most cases, this is not required.
There are specific rules related to rollovers. Again, check with your service provider for the specifics related to your Plan. 401(k) Plans are qualified Plans. That means that they must meet specific criteria which then makes the income earned on the funds in the Plan tax-exempt until withdrawn. To continue to remain a qualified Plan, only funds from other qualified Plans should be rolled into your Plan. The service provider should verify this before they complete the transaction, but it would be a good idea to ask the employee what is the source of the funds that they wish to include. Also, your Plan may not allow a rollover of Roth funds into the Plan. There are always specific circumstances related to your Plan so check with your service provider.
Lastly, we always recommend that you verify the rollover transaction was fully completed by reviewing Plan reports to see that the money was received and that it was placed into the correct participant account.
Retirement plans can be very complex. As an innovative firm Summit CPA specializes in 401(k) audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.