Expert: Allen - 9/16/2009

Question
I would like to take my pension (with a former employer) and roll it over to a 401k plan with my new employer.  However, I am told that the 401k can't take the pension unless it comes out of an IRA.  If I roll it into an IRA are there costs involved?  If I can roll it into an IRA, why can't I roll it into a 401K?
I would like to roll it into an IRA and then immediately roll it over to my employer's 401k.  Can this be done?

Thanks.
Kate

Answer
There are several questions here:

1. A plan does not have to accept rollovers. Alternatively, it can accept rollovers from certain sources but not all. It all depends on the language in the plan document. It sounds like your company's plan has been drafted to only accept rollovers from IRAs. I'm not certain why they did this. However, it's legitimate.

2. There may be costs associated with the rollover to the IRA. This would depend on whose IRA you are using. To minimize costs you should probably choose an IRA from a no load mutual fund company such as Vanguard or T. Rowe Price. You will pay management fees on the investments in the account. However this is the case no matter where you deposit money whether it be an IRA or a 401k.

3. You could roll your money to an IRA and then from the IRA to the 401k plan.