Tax law provisions make retirement planning easier

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Paula Daugherty is a financial planner with American Express Financial Advisors Inc. |ret||ret||tab|

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Private-sector workers with 401(k)s or IRAs aren't the only ones taking advantage of expanded retirement plan portability enacted by the new tax law. If you're a state or local government employee with a 457 plan, you also now have more options for your retirement nest egg when you change jobs.|ret||ret||tab|

Such flexibility may help you consolidate your retirement assets and simplify your financial life, while maintaining the tax-deferred status of your investments.|ret||ret||tab|

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Fewer rollover restrictions|ret||ret||tab|

Before the Economic Growth and Tax Reconciliation Relief Act took effect Jan. 1, 457 plans were fairly restrictive when it came to rollovers. Government employees had two options when they left their jobs: either transfer the money to another 457 plan at a new government job, or leave it with their former employer.|ret||ret||tab|

Now many of the barriers between government, private employer and individual retirement plans have been removed. So when you leave your government job, you can roll over eligible distributions tax-free to a traditional IRA or to a 401(k), 403(b) or 457 plan that accepts such rollovers.|ret||ret||tab|

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Portable plans|ret||ret||tab|

The same flexibility also applies to owners of 401(k)s, 403(b)s and traditional IRAs, who now may roll over eligible distributions tax-free to any of the other types of plans or to a governmental 457 plan, if the plan accepts such rollovers.|ret||ret||tab|

Other portability provisions of the new law include:|ret||ret||tab|

After-tax employee contributions to a qualified plan can be rolled over to another qualified plan or traditional IRA;|ret||ret||tab|

Taxable IRA distributions can be rolled over to a qualified plan, 403(b) annuity or governmental 457 plan; and|ret||ret||tab|

A deceased spouse's qualified plan assets can be rolled over to any qualified plan, 403(b) annuity or governmental 457 plan for the surviving spouse.|ret||ret||tab|

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Consolidation opportunity|ret||ret||tab|

If job changes have left your retirement savings in different employer plans and IRAs, you know that managing scattered accounts can be challenging. One way to cut the confusion is to meld your retirement plans into one easy-to-manage IRA. Such a move may offer several advantages.|ret||ret||tab|

Continued tax deferral: A direct rollover to a traditional IRA will not interrupt your retirement savings' tax deferral. |ret||ret||tab|

Easier tracking and managing: Having one IRA will reduce the number of account statements you receive and your time spent in tracking and managing the assets. |ret||ret||tab|

A wide selection of investments: An IRA at a financial services firm may give you a broader selection of investments, and you can move your money among investments at any time.|ret||ret||tab|

Cost savings: Consolidating into just one IRA means you'll no longer have to pay annual fees on multiple accounts.|ret||ret||tab|

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Consult advisors|ret||ret||tab|

While rolling over your retirement assets to an IRA offers advantages, consult your tax advisor before making the move. If you have a 457 plan from which you want to withdraw money before age 59 1/2, for example, a rollover to an IRA or 401(k) may not be appropriate. That's because early withdrawals from 457 plans do not incur a 10 percent IRS penalty tax, while such distributions from IRAs and 401(k)s do result in the penalty until age 59 1/2. Keep in mind that assets rolled over from a 457 plan to an IRA or 401(k) are governed by the rules of the receiving plan.|ret||ret||tab|

Another person to contact for help is your financial advisor.|ret||ret||tab|

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