Rolling over a retirement account with a job change
Q I am looking into changing companies. I am 37 and contribute 10 percent of my salary to a tax-deferred 401(k) account. If I roll the account over, what does the rollover mean to me? Will I be able to leave my 401(k) plan as it is? And what documentation needs to be sent from company A to company B?
J.B., via e-mail
A "By making a rollover, you will continue deferring taxes on your interest earnings," says Tim Schmidl, a financial consultant with Prism Group in Overland Park, Kan. To best benefit from the rollover, Mr. Shmidl suggests that you roll the 401(k) assets into an IRA account, rather than shifting the money to your new employer's 401(k) plan.
"With the IRA account, you will have greater control over how the assets are invested than you would have with the new 401(k) plan," he says. "You can choose where the money should be invested, and make changes as necessary."
If you choose to instead roll over the account from Company A to Company B, Company A will have all the necessary paperwork, Shmidl says.
Whatever you do, be sure to have all paperwork done by the companies involved, and avoid taking direct possession of the assets from the old 401(k) plan. If you do, you will face a stiff tax penalty.
Finally check with your current employer to see if you can leave your 401(k) plan as it is. Some will allow it, others won't.
Q I am a diplomat working in New York. I don't pay any taxes, not even income taxes. I am interested in buying some mutual funds. Do I need to pay tax on the earnings?
Z.F., New York
A Your situation depends on whether your country or diplomatic agency has a special treaty with the US that governs tax matters, says an IRS spokesperson.
Generally, the wages of diplomats are not taxed in the US. But many nations and agencies have additional agreements with the US regarding investment earnings.
So, you have two starting points, according to the IRS: 1. Check with the legal officer in your embassy or agency. The officer should be able to tell you what to do regarding taxation of earnings; or, 2. Contact the desk officer for your country or agency at the US State Department. The State Department also has an office that deals with tax issues for diplomats.
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