Can a Profit Sharing Plan Be Transferred to an IRA?

It can, and here's how.

Dec 23, 2015 at 11:32PM

A profit-sharing plan is a defined contribution plan for which an employer determines when and how much it will pay. The amount a company contributes is often based on an individual employee's salary. Some employers offer 401(k) plans, which are considered profit-sharing plans, but there are other types of plans that fall under the category of profit-sharing as well.

If you have a profit-sharing plan through your employer, you can transfer money from it to an IRA, or individual retirement account. If your company's plan follows a vesting schedule, it means you don't take full ownership of your funds until you've put in a certain amount of time as an employee. If that's the case, you may have to wait a certain amount of time to be vested in your plan before you can transfer that money.

Transferring money to an IRA
When transferring money out of a profit-sharing plan into an IRA, you have the option to move a portion of the balance if you don't wish to transfer it all at once. You can also make multiple transfers, as the IRS doesn't impose a waiting period between transfers.

If you choose to transfer money from a profit-sharing plan to an IRA, you must deposit whatever amount you take out within 60 days to avoid being taxed on your withdrawal. If you fail to do so, the IRS will tax your distribution as income. In addition, you may incur a 10% early withdrawal penalty if you take out funds before you reach the age of 59.5.

When you transfer the money, your employer is required to withhold 20% of the total amount. You can reclaim that withheld amount when you file your tax return, but if you fail to replenish that 20% with your own money in the interim, you'll be subject to taxes. You can avoid the 60-day time limit and 20% withholding requirement by moving money from your profit-sharing plan to your IRA via a trustee-to-trustee transfer.

Restrictions on transferring money to an IRA
The IRS imposes certain restrictions when transferring money from a profit-sharing plan to an IRA. You cannot transfer money resulting from:

  • A hardship distribution
  • A required minimum distribution
  • Excess contributions
  • A loan taken from your plan

Additionally, you cannot roll over a life insurance policy from a profit-sharing plan to an IRA. You also can't transfer a Roth profit-sharing plan to a traditional IRA.

The $15,978 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors based in the Foolsaurus . Pop on over there to learn more about our Wiki andhow you can be involved in helping the world invest, better! If you see any issues with this page, please email us at . Thanks -- and Fool on!

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers