Don't make these retirement account mistakes (Forbes)

Retirement Account Mistakes--Not For Dummies
Janet Novack

a guide to some of the traps created by the insanely complicated rules surrounding IRAs, 401(k)s and other retirement accounts


No, this is not another story lecturing you to save more, diversify, control your investment costs, or ignore the hot stock tip from your brother in law who did time for securities fraud. You’re no dummy.

What this is, instead, is a guide to some of the traps created by the insanely complicated rules surrounding IRAs, 401(k)s and other retirement accounts —traps that can snare not only smart investors, but also financial advisors, lawyers, accountants, and yes, even the Internal Revenue Service itself.

Lest you think that’s hyperbole, consider this: a U.S. Tax Court judge  ruled last year that a tax lawyer couldn’t use an IRS publication in his defense, because the IRS itself  had misinterpreted a provision of the law relating to IRA rollovers. “Even the IRS is confused,’’ marvels CPA Ed Slott, who makes a nice living training other financial pros about IRA rules and fixing the mistakes they and their clients make.

The sad fact is a normal human being not in Slott’s business can’t know all the rules. But taking a few minutes to acquaint yourself with the more common mistakes can help keep you safe and out of the IRS’ penalty zone. At the least, you’ll have a sense of when you need to consult IRS publications (which, despite that court ruling, you can usually rely on) or speak to a retirement account specialist at the financial institution where your IRA or 401(k) is held, or maybe even pay an expert for help.  Two key IRS Publications are  590a on IRA contributions and 590b on IRA distributions.  (There used to be just one publication 590, but it was so long, what with all the rules, that the IRS split it into two.) Note that part of what makes this all so complicated is that there are more than a dozen different types of retirement accounts, each with its own sometimes differing rules. So to be fair, Congress, not the IRS, deserves most of the blame for this mess.

To assemble my list of  25 Retirement Account Mistakes Smart People Make, I  consulted Slott and Robert Keebler, another CPA/IRA expert, and reviewed court cases, private letter rulings and government reports. Most of the mistakes  relate to early withdrawals, inherited IRAs, required minimum distributions and account rollovers. But  you can also get yourself in trouble putting the wrong thing in an IRA. (Tempted to hold gold in your IRA? The gold must be of a certain type and must  be kept with your IRA custodian, not under your bed.) Of course, this list of 25 mistakes is by no means exhaustive. Here’s a bonus tip that’s not on it: never ever, ever put a master limited partnership in a retirement account.

The discussion below offers some extra background on two areas where mistakes are particularly common.

Early withdrawals woes

Withdrawals taken from a traditional IRA or 401(k) before age 59 ½ are generally subject to not only ordinary income taxes, but also a 10% penalty  on the taxable amount. Fortunately, there are 11 separate exceptions, detailed here, that can get you out of the 10% extra hit. On their 2013 tax returns, 1.7 million taxpayers reported that they took early distributions, but only 1.2 million indicated they were subject to the additional 10% tax penalty, the IRS estimates.

The problem is that some of those 500,000 folks who reported themselves exempt from the penalty will get audited by the IRS and then hit with the 10% early withdrawal penalty and possibly an additional penalty for negligence.  That’s because they got the exceptions wrong. One common mistake: thinking you can take an early penalty free withdrawal from a 401(k) to pay college or graduate school bills, or to buy a first home, when in fact these penalty exceptions only apply to IRA withdrawals.

In one classic case, an accountant who had left Deloitte to earn his PhD  got hit with the 10% penalty for using $30,000 from his 401(k) to finance his graduate studies and buy a first home. The tax court rejected his argument that since he could have transferred the 401(k) money to an IRA first, and then used it penalty free for those very purposes, he shouldn’t have to take the extra 10% hit. The judge said he sympathized with the accountant’s confusion, and agreed that the law is “highly technical,’’ but concluded that, well,  the law is the law.

Another common misconception Slott flags: that you can get out of the 10% penalty because you took the money out to deal with a general financial hardship. The widespread confusion may stem from the fact that some employers allow early “hardship” withdrawals from 401(k)s. But that doesn’t get the employee out of paying either tax or the 10% early withdrawal penalty.

If you have a financial hardship, there may be other ways to tap retirement early penalty free. For example, if you’re 55 or older and lose (or leave) your job, you can tap money from your 401(k) penalty free– so long as you don’t roll it into an IRA first. (Yet another trap.)


Death traps

With a growing share of families’ assets in retirement accounts, mistakes made while passing them on are a big deal.  One easy to understand and fix mistake:  failing to keep your beneficiary forms up to date. The form on file with your IRA custodian, not any other estate document, and not an unfiled form you’ve stuck in your desk drawer, determines who gets your IRA.  If you want to make sure your ex-spouse (or an ungrateful child) doesn’t get your IRA, take him or her off that form as well as out your will.

Another batch of inheritance mistakes has to do with “stretch” IRAs. You can roll over an inherited IRA into your own name only if you inherit it from a spouse. (Although you should usually wait until you’re  older than 59 ½ to roll over your late spouse’s IRA  because withdrawals from an inherited IRA can be taken at any age without paying the 10% early withdrawal penalty. Once you roll an account over into your own name, you lose that early withdrawal flexibility.) But any individual beneficiary can retitle an IRA as an “inherited IRA” and stretch out withdrawals over his or her own life expectancy, thus gaining decades of tax deferred, or (in the case of a Roth IRA tax free) growth.

Although some in Washington, including the Obama Administration, would like to eliminate the stretch IRA,  this valuable tax break is available for now. Available, that is, so long as you (the IRA owner) or your heirs don’t make any mistakes.  One huge no-no is rolling an IRA inherited from someone other than a spouse into your own name. If you do that, the whole amount is immediately taxable. Instead, as a nonspousal heir, you must  retitle the IRA, including the original owner’s name and that it is inherited, e.g., “John X. Smith II,  deceased, inherited IRA for the benefit of John X Smith III.”  Similarly, if a trust is named as an IRA beneficiary, you can’t actually transfer the IRA into the trust. Instead, you retitle the IRA and deposit the yearly payouts in the trust. (Note that if you want to change the financial service company holding an inherited IRA,  you must do it in a trustee to trustee transfer.)

What about the mistakes IRA owners make that limit their heirs’ ability to stretch out the account’s life? A common one is naming your estate as your beneficiary on an IRA form. In many cases, that will force the IRA to be distributed within five years, cutting short the potential tax deferral or tax free growth. (The exact rule is this: funds in a Roth IRA left to an estate must be withdrawn within five years. Period. For a  traditional IRA left to an estate, if the deceased turned 70 1/2—the age at which a traditional IRA owner must start taking required minimum distributions–before his death, payments can be stretched out for what would have been his remaining life expectancy, according to IRS tables. That is usually more than five years, but it is probably less than the life expectancy of individual heirs, had they been named as individual beneficiaries.)

A related mistake is neglecting to name a contingent beneficiary. The problem? Should your primary beneficiary die before you, the IRA will likely go to your estate, again cutting short tax deferral. Moreover, if you name a primary beneficiary (say your child) and a contingent beneficiary (say your grandchild), then your child has the option of  ”disclaiming” the IRA in favor of your grandchild.

Still other mistakes have to do with not taking the proper required minimum distributions from inherited IRAs. If you’ve just inherited an account, read William Baldwin’s 11 Step Instruction Guide To Inherited IRAs, Inherited Roth Accounts And RMDs. And for in-depth advice on the best way to pass on a retirement account, spring for a copy of  Estate Planning Smarts by lawyer and former Forbes Senior Editor Deborah L. Jacobs.

Which is better, lump sum or pension (Fidelity)

Lump sum or monthly pension?

What you need to know about monthly and lump sum pension offers.

• FIDELITY VIEWPOINTS 
• – 12/19/2014

 

Faced with mounting pension costs and greater volatility, companies are increasingly offering their current and former employees a critical choice: Take a lump sum now or hold on to their pension.

“Companies are offering these buyouts as a way to shrink the size of their pension plans, which ultimately reduces the impact of that pension plan on the company’s financials,” says John Beck, senior vice president for benefits consulting at Fidelity Investments. “From an employee’s perspective, the decision comes down to a trade-off between an income stream and a pile of money that’s made available to him or her today.”

Pension buyouts can be offered to any current or former employee of a firm. You may be already receiving benefits as a retiree with an accrued (vested) benefit, or you may have a vested benefit from a former employer, or your current company may be offering you a pension lump sum buyout long before you retire.

Whatever the case, here’s how a pension lump sum offer typically works: Your employer issues a notice that by a certain date, eligible employees must decide whether to exchange a monthly benefit payment in the future for a one-time lump sum. If you opt for the lump sum, you’ll receive a check from the company’s pension fund for that amount, and the company’s pension (or defined benefit) obligation to you will end. Alternatively, if you opt to keep your monthly benefits, nothing will change, except the option to take a lump sum will be removed.

Some employers are also considering buying annuities for those who do not opt for the lump sum offer. In this case, your benefits will not change, except that the insurance company’s name will be on the checks you receive in retirement, and the guaranteed income will be provided by the insurance company.1 (As with offering lump sums, companies that switch to an annuity provided by an insurance company can remove the pension liability from their books.)

The process is relatively simple, but the decision about which option to take can be complex. Here are the pros and cons of each option:

Keeping the monthly payment

Pension plans typically provide a payment of a set amount every month from your retirement date through the rest of your life. You may also choose to receive lifetime payments that continue to your spouse after you die.

These monthly payments do have drawbacks, however:

• If you’re not working for the company making the offer, your benefit amount typically will not increase between now and your retirement date. During retirement, your life annuity payments typically do not come with inflation protection, so your monthly benefits are likely to lose purchasing power over time. An annual inflation rate of 3%, the average since 1926, will cut the value of your benefit in half in 24 years.
• Taking your pension benefit as a life annuity means you may not have access to enough money to fund a large, unexpected expense.
• Your ability to collect your payments depends in part on your company’s ability to make them. If your company retains the pension and can’t make the payments, a federal agency called the Pension Benefit Guaranty Corporation (PBGC) will pay a portion of them up to a legally defined limit. The maximum benefit guaranteed by the PBGC in 2014 is $4,943 per month for most people retiring at age 65. The monthly guarantee is lower for retirees before age 65 and larger for retirees age 65 or older. If responsibility for your payments shifts to an insurance company, it will be the insurance company and not the pension plan that is responsible for your guarantees.2

Taking the lump sum

A lump sum may seem attractive: You give up the right to receive future monthly benefit payments in exchange for a large cash payment now—typically, the actuarial net present value of your age-65 benefit, discounted to today. Taking the money up front gives you flexibility: You can invest it yourself, and if you have assets remaining at your death, you can leave them to your heirs.

However, keep in mind the following cautionary factors:

• You are responsible for making the funds last throughout your retirement.
• Your investments may be subject to market fluctuation, which could increase or reduce the value of your assets and the income you can generate from them.
• If you don’t roll the proceeds directly into an IRA or an employer qualified plan like a 401(k) or an 403(b), the distribution will be taxed as ordinary income and may push you into a higher tax bracket. If you take the distribution before age 59½, you may also owe a 10% early withdrawal tax penalty.
• You can use some or all of the lump sum to purchase annuity—typically, an immediate
  annuity—which could provide a monthly income stream as well as inflation protection or other features. But as an individual buyer, you may not be able to negotiate as good a deal with the insurance provider as the benefit you would have received by taking the pension plan annuity, so the annuity may or may not replicate the monthly pension payment you would have received from your employer. You also need to select your annuity provider carefully, paying special attention to a company's credit ratings, and make sure you read and understand the terms and conditions of the annuity.

Making your choice

Whether it’s best to take a lump sum or keep your pension depends on your personal circumstances. You’ll need to assess a number of factors, including those mentioned above and the following:

• Your retirement income and essential expenses. Guaranteed income, like Social Security, a pension, and fixed annuities, simply means something you can count on every month or year and that doesn’t vary with market and investment returns. If your guaranteed retirement income (including your income from the pension plan) and your essential expenses, such as food, housing, and health insurance, are roughly equivalent, the best choice may be to keep the monthly payments, because they play a critical role in meeting your essential retirement income needs. If your guaranteed income exceeds your essential expenses, you might consider taking the lump sum: You can use a portion of it to cover your monthly expenses, and invest the rest for growth.
  
  These comparisons may be relatively easy if you’re already retired, but developing an accurate picture of your retirement income and expenses can be difficult if you’re still working. Beware of the temptation to use the lump sum to pay down credit card debt or handle other current expenses—and not just because of the large tax bill you’re likely to face. “Lump sum distributions come from a pool of money that is developed specifically for retirement,” explains Beck. “To access those funds for another reason puts the quality of your retirement at risk.”
• Longevity. Both your monthly benefits payment and the lump sum amount were calculated using actuarial calculations that take into account your current age, mortality tables, and interest rates set forth by the IRS. But these estimates don’t take into account your personal health history or the longevity of your parents, grandparents, or siblings. If you expect to have an above-average life span, you may want the predictability of regular payments. Having a payment stream that is guaranteed to last throughout your lifetime can be comforting. However, if you expect to have a shorter-than-average life span because of personal reasons or your family medical history, the lump sum could be more beneficial.
• Wealth transfer plans. After you’ve considered retirement income and expenses, and have planned an adequate cushion for inflation, longevity, and investment risk, it’s appropriate to take wealth transfer plans into consideration. With pension plans, you often don’t have the ability to transfer the benefit to children or grandchildren. If wealth transfer is an important factor, a lump sum may be a better option.

Moving forward

A pension buyout should be evaluated within the context of your overal retirement picture. If you are presented with this option, consult an expert who can give you unbiased advice about your choices. Finally, be aware that more corporations continue to consider discharging their pension obligations, so it’s a good idea to stay in touch with old employers. “If you’ve left a pension behind at a former employer, sometime in the coming years you’re very likely to be offered a lump sum,” says Beck. “Keep your former employer’s administrator up to date on your current address, because you can miss this opportunity if your employer can’t find you.”

Next steps

• First and foremost, make sure you know whether you have any pension benefit at your current or former employers, and keep your contact information with those companies up to date. You cannot even consider an offer if you don’t know it exists.
• Second, make sure you have a plan for retirement. If you understand your needs, you will be better prepared to understand which option is right for you if you do receive a lump sum offer. Because these offers usually have a limited window for election, it will be more difficult to make an educated and informed decision without knowing, in advance, your total retirement financial picture. Using Fidelity Income Strategy Evaluator® (login required) and Retirement Income Planner can get you started.
• If you decide to take a lump sum in lieu of monthly pension payments, you may want to consider rolling it over to an IRA. A direct rollover from your employer's plan to your IRA provider (trustee to trustee) will not be subject to immediate taxation and may be the best way to preserve the tax-deferred status of this money. You should consult your tax adviser.

If you do receive an offer, review it with a trusted financial adviser. Everyone’s circumstances are different. What is right for your friend, neighbor, coworker, or relative may not be right for you.

Mistakes with your IRA - What Not To Do (Bankrate.com)

retirement

Avoid these 8 common IRA mistakes

By Sheyna Steiner • Bankrate.com

Retirement » Avoid These 8 Common IRA Mistakes

Mistake No. 1: Live only for today

IRAs, or individual retirement accounts, may be trickier than you think. And what you don't know can cost you money.
Many of the most common IRA mistakes occur simply because people don't know the rules governing these accounts -- of which there are many. Complex rules provide many opportunities for things to go awry, but the biggest mistake with IRAs may be not contributing to one at all.
"If you don't put anything in, you won't have anything at the end," says IRA expert Ed Slott, president of Ed Slott and Co., and author of "The Retirement Savings Time Bomb … and How to Defuse It."
Each year that you're eligible to make IRA contributions and don't is a chunk of retirement income lost. The most significant factor in the amount of money accumulated at retirement is the amount you save, not the rate of return on investments.
In general, "If you run the numbers, someone who doesn't skip contribution years versus someone who does, the person who doesn't skip years will end up with more money in retirement," says Ken Hevert, vice president of retirement products at Fidelity Investments.

Mistake No. 2: Missing tax-free growth

The most widely used types of IRAs are the Roth and the traditional IRA.
Both accounts allow annual contributions of $5,500 in 2013, but they receive different tax treatment. In a nutshell, Roth IRA contributions are made with after-tax money, while contributions to a traditional IRA may qualify for a tax deduction for the year the contribution was made.
With the Roth, taxes are paid on the front end so that in retirement all distributions, including interest and earnings, are tax-free. Conversely, the traditional IRA generally gets a tax advantage at the time the contribution is made, but distributions are taxed as ordinary income in retirement.
There is an exception to that rule. High earners who are covered by a retirement plan at work may not qualify for a tax deduction.
Big moneymakers are hemmed in on the Roth side as well.
Income limits prohibit high earners from contributing directly to a Roth. A married couple who files taxes jointly and earns more than $188,000 per year cannot contribute to a Roth, and single people earning more than $127,000 are also prohibited.
But all is not lost. Read on to see how to sidestep these apparent obstacles to IRA investing.

Mistake No. 3: Lost opportunity due to ignorance

Make too much money to contribute to an IRA? You can get around this problem.
High earners can still take advantage of the Roth IRA by contributing to a nondeductible IRA and then converting to a Roth. A nondeductible IRA is simply a traditional IRA for which there is no tax deduction, and it is available to almost everyone with wages or self-employment income.
"I do that myself. I make too much to contribute to a Roth, so I can contribute to a nondeductible IRA and convert it to a Roth," says Slott.
"It's really just moving money from a taxable pocket to a tax-free pocket. Why wouldn't everybody do it to shelter their money from future higher taxes at no cost?" he says.

Mistake No. 4: Messing up RMDs

IRS rules call for required minimum distributions, or RMDs, from traditional IRAs beginning at age 70½. Failing to take the entire amount required can lead to stiff penalties.
"The IRS can charge a tax penalty of up to 50 percent of the distribution. So it could be quite severe," says Evan Shorten, CFP, president of Paragon Financial Partners in Los Angeles.
With a Roth IRA, no minimum distributions are required during your lifetime. If you pass on and leave the Roth to a nonspouse beneficiary, that person will be required to take distributions based on their own life expectancy if they choose to stretch the tax advantage of the retirement account until the end of their own life.
Beneficiaries of traditional IRAs who choose the stretch option are subject to the required minimum distribution rules as well and face the same 50 percent penalty for neglecting to take the full distribution.

Mistake No. 5: Contributing too much

The IRS limits the amount that may be contributed to a Roth or traditional IRA in any one year. For 2013, the contribution limit is $5,500. For the 50 and older crowd, the limit is $6,500.
With contribution limits strictly controlled, putting in more than the allowed amount can trigger a penalty -- to the tune of 6 percent on the excess each year.
There are several ways to run afoul of this rule, not the least of which is simply forgetting you made a contribution earlier in the year.
Excess contributions can occur by funding an IRA after age 70½, contributing more than your taxable income for the year or contributing on behalf of a deceased individual.
"Some people may have gotten into the routine of contributing to a personal and spousal IRA, and for whatever reason, the spousal IRA continues after they're deceased," says Fidelity's Hevert.
Luckily this mistake is easily remedied as long as you catch it before taxes are filed.
"Get it out before you file and no harm, no foul," Hevert says.
"Another (option) is to essentially carry that contribution to another year, and have that count toward that tax year's contribution amount -- but you have to document that with the IRS," he says.

Mistake No. 6: IRA rollovers gone wrong

Unfortunately, paying someone to take care of your financial transactions is no guarantee of perfection.
"Advisers are generally not proactive, and they don't check things," Slott says.
Administrative transactions, such as transferring a retirement account, require attention to detail. Whether you're rolling over a 401(k) or transferring your IRA to a new custodian, not only do you need to pay meticulous attention to those little check-boxes; the customer service representative at the receiving institution also needs to be on alert.
"We see cases on this all the time. They find out the money never got to an IRA, the broker or bank moved the money and hit the wrong box, and it went to a regular account. That's a taxable distribution," says Slott.
Facing the prospect of losing the tax shelter of the IRA as well as paying the taxes owed on the entire account balance, an IRA owner has only one way of remedying rollover mistakes like these.
"You have to go to the IRS for relief, and that is going to be expensive and take six to nine months to get a decision," Slott says.

Mistake No. 7: Blowing the deadline

A trustee-to-trustee rollover isn't the only option for moving between retirement accounts. Individuals can take money out of their IRAs or take a distribution from their 401(k) when they leave an employer and put it back into a qualified retirement account without tax consequences -- as long as they do so within 60 days.
"That may seem like a long time, but a lot of people blow it. And another thing: You can only do that once every 365 days, not calendar year. Some people can lose their entire IRA because they did two rollovers in a year and didn't realize it," Slott says.
The safest bet is to do a direct transfer from one institution to another. When everything goes correctly, the money never comes out of a retirement account because the check is written to the receiving institution, not an individual. In the end, however, the burden is on the account owner to make sure their new account is set up correctly.

Mistake No. 8: Neglecting beneficiary forms

Properly filling out a beneficiary form is a pain. Personal information from the beneficiaries is needed, including birth dates and Social Security numbers. It's so easy to focus on just getting the account open and then taking care of the beneficiaries later, someday -- it's on your to-do list.
"When you open an account or transfer or convert, you need new beneficiary forms. Most don't check those things because they think someone else did or it's in their will," Slott says.
Not having a beneficiary form won't affect you after you die, obviously, but "your beneficiaries can lose valuable tax benefits, they won't be able to stretch (distributions) over their lifetime, so a lot of benefits can be lost -- or it can go to the wrong person," Slott says.
As with many aspects of these accounts, failure to properly check the details can come back to haunt you or your loved ones. When in doubt, consult a professional. But don't be afraid to double-check their work: it is your life savings, after all.

taking money out of your IRA or your 401k (IRS.gov)

Did you Take an Early Distribution from Your Retirement Plan?

IRS Tax Tip 2011-42, March 1, 2011

Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.

Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.


Early distributions are usually subject to an additional 10 percent tax.


Early distributions must also be reported to the IRS.


Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.


The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.


If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.


If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.


If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.


There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.


For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Publication 575, Pensions and Annuities (PDF 227K)
Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts (PDF 72K)
Form 5329 Instructions (PDF 40K)

Florida Retirement System: Veto for Changes to FRS DROP (floridacapitalnews.com)

Article published May 29, 2010
TOP STORY
Crist refuses to cut DROP for state workers
By Bill Cotterell
Florida Capital Bureau

Gov. Charlie Crist refused Friday to slash interest earnings on government-employee pensions in the Deferred Retirement Option Program, saying lawmakers unfairly popped the change into the budget late in the session.

"It's like Gov. Lawton Chiles used to say: 'This time the people win,' only this time, the people are the state employees," said state Rep. Alan Williams, D-Tallahassee. "That was the right decision by the governor."

DROP is an option for state, county and local employees who participate in the Florida Retirement System.

Williams and Sen. Al Lawson, another Tallahassee Democrat who voted against the change last month, were intrigued by the political implications of the veto. Crist, a former Republican now running for the U.S. Senate as an independent, endeared himself to state employees last year by vetoing a 2-percent salary reduction for those earning more than $45,000.

"He's going to get some state-employee support," said Lawson. The Senate minority leader met with Crist early this month and lobbied him to veto the interest cut.

The DROP program allows retirement-eligible employees to start collecting their pensions while continuing to work for up to five years. The monthly pension checks are banked at 6.5 percent interest, but the Legislature voted to cut that to 3 percent for those who enter DROP after July 1.

There's been a flood of DROP applications in the past two months, to beat the cut that now won't come.

Crist said the change was inserted in a joint committee report on the budget "with little or no opportunity for discussion or debate. Changes to employee retirement accounts should be vetted through the normal committee process to avoid unintended consequences that may occur when rushed through the process."

The Bill (HB 5607) passed the Senate 32-6 and the House 78-42. That's more than enough to override a veto in the Senate, but House leaders would have to switch two "Nay" votes to get the required two-thirds majority if an override vote is taken and all members showed up.

7 Costly Mistakes When Leaving a Job (Marketwatch)

Seven costly mistakes workers make when they leave a job
By Robert Powell, MarketWatch

Last update: 6:35 p.m. EDT March 11, 2009BOSTON (MarketWatch) -- There's many a slip twixt cup and lip. Most people, conventional wisdom might suggest, would roll their entire 401(k) over to an IRA after they leave their employer. But according to data released last week, many workers only roll a portion of their retirement funds into an IRA.
According to the Employee Benefit Research Institute, those with $50,000 or more in their 401(k) roll over on average 72.4% of their balance after leaving their employer while those with $1,000 to $2,499 in their 401(k) plan roll over on average just 19.5%.

There are plenty of reasons why someone might roll just a portion over to an IRA. But the consequences, in all but a few cases, can be severe. Uncle Sam will tax the distribution at ordinary income rates, plus assess a 10% penalty.
And that, say experts, is just one of seven easily avoided mistakes workers make after they part ways with their employer:
1. Failing to roll
The first big mistake is, of course, not doing a rollover at all, according to Beverly DeVeny, the IRA Technical Consultant at Ed Slott and Co. If you don't do a rollover, you'll be taxed. Plus, you'll fall even further behind in your attempt to build a nest egg.
2. Forgetting a direct rollover
DeVeny says plan participants should take direct rollovers in order to avoid the 20% withholding rules. "But, if withholding has been done, you do have 60 days to replace the withheld amount with personal funds and thus roll over the entire plan balance," she said. Make sure you talk to your HR or employee benefit department about your rollover before transferring any money.
3. Failing to account for plan loans
If you borrowed money from your 401(k) and there's an outstanding balance on your loan when you leave your employer, beware of this scenario playing out. In some cases, your employer will deduct the loan from the total distribution. You can, of course, replace the "paid off" amount with funds from other accounts and then roll over the entire balance.
But if you don't replace the "paid off" amount, Uncle Sam will view the amount of the loan as a taxable distribution. "If the funds are not rolled over, the participant will owe income tax on the loan balance that was paid off," said DeVeny.
Given what's happened to the market of late, there's another worst-case scenario for which there is seemingly no precedent. If a plan balance is no longer large enough to pay off a plan loan it might be time to call in an attorney or two.
4. Leaving money on the table
"Whether you have a 401(k), 403(b), or 457(b), be sure any profit-sharing and matching has been credited to your account before leaving your employer," said Aaron Skloff, a certified financial planner with Skloff Financial Group. This is especially true if you have the ability to time your departure from your employer. According to Skloff, profit-sharing and matching contributions typically aren't made on the same schedule as employee contributions.
What's more, consider your vesting schedule. It would be a big mistake to leave before all the money owed you hits your account or before the anniversary date on your vesting schedule. "You don't want to be a creditor of your former employer," said Skloff.
5. Failing to consider net unrealized appreciation options
In some cases, you might own company stock in your 401(k). And, as hard to believe as it may sound, that stock might be trading above the price you paid, or your cost basis. If that's true for you, consider taking advantage of the net unrealized appreciation rules, said Skloff.
Instead of rolling your entire 401(k) balance over to an IRA, roll everything but your company stock into an IRA. You would then distribute the stock to a taxable account and pay ordinary income tax on the cost basis of the stock. Then later on, if you sell the stock above the cost basis, you would pay a capital gains tax on the appreciated value -- the difference between the sale price and basis.
The rules can be tricky so be sure to consult with a qualified professional before trying this at home.
6. Eschewing a Roth conversion
It's not so much a mistake to avoid as it is a strategy. Yes, the new buzz phrase of the day is something called "tax diversification." You want to have the ability to withdraw money from accounts that provide you with the greatest after-tax amount of money. That means having a traditional IRA and a Roth IRA. So, for instance, if you don't have a Roth IRA, now might be the time to consider it. Consider doing a Roth conversion with all or some of the money in your 401(k), especially, DeVeny said, if there are after-tax dollars in the plan.
7. Other mistakes to avoid
Make sure you open all your mail. "If the plan sends you a check (either by accident or because you requested it), you only have 60 days to roll it over to another tax-deferred account, said DeVeny.
Make sure all your paperwork is in order, said Skloff. In some cases missing the employer's signature on this or that form could result in big tax problems.


Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.