Profit Sharing Plan Questions?

[becka]

I know there have to be some very smart people here on this board that may be able to answer a few questions for me.

I have a profit sharing plan (not a 401(k)) here at work and I cannot seem to find any information about what happens to the money if I decided to leave my current job. I can find information about rolling over the total into an individual IRA, etc. but what happens if I don't want to roll it over?

I think I remember hearing there is a 10% tax penalty on top of regular taxes - is this correct?

 

[Mskanga]

Yes it is Becka, you get a 10% tax penalty at the end of the year when you do your taxes and you also pay taxes on it, but once you get the check , you have 60 days to roll it over to an IRA without any kind of penalties or tax.
I know because we went through that with dh's profit sharing plan when his company was sold.

 

[Dan Murphy]

First, you should be able to ask for the Summary Plan Description (SPD), which will explain all the technical rules about your specific plan, in fairly simple language. You plan administrator should be able to provide you with that, by law.

As for the general rules on disposition of funds, if you leave.....

You can rollover to an IRA, or any other type of a retirement plan, except a pension or SIMPLE IRA.

If the amount is OVER $5,000, you can leave the money, for as long as you want, with the current plan, your choice. If UNDER $5,000, the plan can ask you to move the money, somewhere, (rollover or taxable distribution), or they can allow you to leave it, their choice.

If you take distribution, but no rollover, and pay taxes, at your ordinary income tax rate, PLUS 10% penalty, and don't forget state income tax, if you have that.

If a check is made out to you only, and not to a new custodian for your benefit(plan or rollover), a mandatory 20% federal tax (not enough to cover your total tax, just a flat minimum they withhold) must be withheld. If you want to actually rollover a check made out to you, you would need to come up with the 20% out-of-pocket to prevent that 20% from itwelf being taxed. Best way, always, for a rollover, is to have a direct rollover from the plan to the new rollover vehicle.