PERS retirement plans are generally pretax, meaning you haven’t paid taxes on the money you’ve been stashing away in the plan. If you’re fully vested in the pretax plan, you haven’t paid taxes on your employer’s contributions either. A Roth IRA is a post-tax retirement plan, meaning you pay taxes on your contributions when you deposit them so you can take the money out tax-free when you retire. You must pay taxes on the monies deposited into the Roth IRA, and this could amount to a hefty tax bill at rollover time if you have a nice nest egg stashed away in your PERS plan.
Open the Roth IRA
If you’ve considered the tax implications and decided to move forward with the rollover, your next step is to determine where you want to open your Roth IRA. It might be that your banking institution is a logical choice, or perhaps your financial adviser has some good options for you. Decide on where you want your Roth and open the account so it’s ready to receive the PERS rollover.
Roll the Money Over
Once you have your Roth set, notify your PERS plan administrator of your intent to roll your PERS funds over into your Roth IRA. The easiest way to do this is to request a trustee-to-trustee transfer. This means your PERS administrator will transfer your funds directly over to your Roth administrator, leaving you out of the picture. If you prefer a hands-on approach, you can take possession of the PERS funds yourself and deposit them directly into your Roth IRA.
Watch the Time
Either way, your PERS funds must reach your Roth IRA within 60 days. Otherwise, the IRS will consider the rollover a distribution and penalize you 10 percent if you are not of your PERS plan’s qualifying retirement age. So mark your calendar and keep close watch on those funds to make certain they are deposited in time, no matter who is depositing them.
Pay Your Taxes
You have to pay taxes on the entire rollover amount if your PERS plan was pretax, but you also have to deposit the same amount withdrawn from your PERS plan into your Roth IRA. So you must pay your tax liability from your own pocket. If your PERS plan administrator withholds the taxes from the rollover check, which is the most likely scenario, deposit the difference into your Roth IRA within the 60-day rollover time frame or risk penalty.
Report Your Rollover
Even though you simply transferred the money from one plan to another, you still need to report the rollover to the IRS when you file your taxes in the following year. You will receive an IRS Form 1099-R from your PERS plan administrator. Using the 1099-R as your guide, download and fill out IRS Form 8606. Take your completed Form 8606 total and enter it into line 15b or 11b or your Forms 1040 or 1040A, respectively, notating it’s a “rollover” to report your retirement funds transfer.