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As a former public school teacher, my wife gets a monthly check from the state Division of Pensions and Benefits. Is it possible to move that money each month into her Traditional IRA and consider it a rollover? We don't need the money right now, as I am still working. It seems to me that this is allowed, according to these documents:

It seems to me that the above documents indicate that this is allowed, as long as the money is moved within 60 days of each check (or if we can get the Division of Pensions and Benefits to move it directly into her Traditional IRA). Can anyone confirm if I am reading this correctly, that it is possible to move monthly pension payments into a Traditional IRA and consider them rollovers?

(Note: I am not talking about taking a total lump sum distribution from the pension; we don't want to do that, as that would be far less money than taking the monthly payments for years to come).

According to the pension documentation it is "a qualified pension plan under the provisions of the Internal Revenue Code (IRC), Section 401(a)(17)"

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  • To answer this question, we would need to know the type of pension plan, e.g. 401(a), 403(b), 457(b). I had access to all three as a state employee. Next, I wasn't sure what kind of IRA your wife has. Is it Simple, Roth, something else?
    – Ellie Kesselman
    Commented Feb 13, 2023 at 18:28
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    @EllieKesselman I believe it is a 401(a). Per the pension documentation, "the TPAF is a qualified pension plan under the provisions of the Internal Revenue Code (IRC), Section 401(a)(17),"
    – Daniel Goldfarb
    Commented Feb 13, 2023 at 19:47

3 Answers 3

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The indirect rollover (money distributed to you that you then deposit into an IRA within 60 days) is allowed, but if your plan withholds any taxes from the distributions you'll need to make those up from your cash in pocket and balance it out on your annual tax return later.

There are several exceptions to this, one of them is Sec. 72(t) distributions. You'll need to check with the pension plan if your pension distributions are considered Sec. 72(t) distributions. Another exception is RMDs, this is probably not relevant to you, but worth also confirming with the plan. The details are in the first of your two links.

You can do a direct rollover, from the pension plan directly to your IRA, but the plan has to allow and support that.

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Your wife can roll over all or part of any distribution of her retirement plan account except for the following, see the section titled, "Which types of distributions can I roll over?":

  1. Required minimum distributions,
  2. Distributions of excess contributions and related earnings,
  3. A distribution that is one of a series of substantially equal payments,
  4. Distributions to pay for accident, health or life insurance.

There are a few more disqualifying items on that list, but I selected the ones that seem to fit your situation, with numbers 3 and possibly 1 being most likely to be relevant.

The same IRS document also says,

Distributions that can be rolled over are called "eligible rollover distributions."

I would recommend asking the financial institution where your the IRA is kept. When you do, you'll want to ask if your wife's monthly distributions are considered "eligible rollover distributions" for the purpose of an IRA.

Also, if your wife made any additional, after-tax contributions, you wouldn't want to be taxed twice. State government pension plans can be 401(a), 403(b), or 457(b), with some being before-tax and others being after-tax.

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    The once per year limit is specifically for roll overs from an IRA to another IRA, to avoid abuse. It doesn't apply to rollovers from other types of plans, IRS is pretty explicit about it. Here, since the check comes from the government entity, it is likely a qualified (401(a)) pension plan or a 457(b) deferred comp plan. Why are you assuming this is a SIMPLE IRA?
    – littleadv
    Commented Feb 13, 2023 at 18:15
  • @littleadv The section about limitations on rollovers from one IRA to another IRA is in a separate section of the IRA guidance. As for your other question, OP said Traditional IRA so that's why I assumed SIMPLE IRA. I probably shouldn't have made that assumption. Actually, we would need to know both the type of pension plan AND type of IRA to answer this question. There isn't enough specificity.
    – Ellie Kesselman
    Commented Feb 13, 2023 at 18:20
  • The traditional IRA is the destination, the source is a pension plan (they're getting a check from a government entity managing the plan). By description it sounds like a defined benefit 401(a) plan.
    – littleadv
    Commented Feb 13, 2023 at 18:21
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    For the once per year limit: from the IRS site you linked to - "The one-per year limit does not apply to: ... plan-to-IRA rollovers"
    – littleadv
    Commented Feb 13, 2023 at 18:24
  • @littleadv There are at least thee types of sources (i.e. pension types), which I listed in a comment on the question for state plans, some before tax and others after tax. I quoted directly from the IRS webpage in my answer about what is considered eligible for roll-over and what is not. I will clarify that with quotation marks.
    – Ellie Kesselman
    Commented Feb 13, 2023 at 18:31
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Pension income is typically considered periodic payments which are ineligible for rollover. Here's the IRS reference.

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