This week's panel:

Can I roll the funds from a deferred compensation account into a Roth IRA?

Do funds charge a redemption fee for every withdrawal?

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Can I roll the funds from a deferred compensation account into a Roth IRA?

from MR

Q: I have a deferred compensation account through my employer and I'm not satisfied with the benefits at all. Is there any way that I can close the account and roll the funds into a Roth IRA account?

A: (Frank) Your question didn't define the type of account, or how the benefits are determined. So, I'm making some assumptions that I hope are valid. You probably ought to refer to your agreement with your employer for specific details on funding, benefit levels and other features of your plan.

Most Deferred Compensation plans are "non-qualified", which means that they are not considered pension plans under the tax code, and not covered by ERISA. They are simply an agreement between the employer and employee. The employee relies on the promise of the employer to pay benefits at some time in the future. The benefits may be funded or non-funded. Even if the benefits are funded, as appears to be the case in your question, the funding account is a general asset of the company and subject to any of its creditors. Funded plans are usually invested in life insurance contracts, variable annuities, or mutual funds.

Because the agreement is not a "qualified" account, it is not possible to roll it over to an IRA.

You mentioned that you are not satisfied with the benefits. If that means, as I presume, that you are unhappy with the investment results of the account, then it may be possible for you to convince your employer to invest the funds in the account more efficiently and effectively. However, unless specifically covered in the deferred compensation agreement, the employer usually has discretion as to how the funds are invested.

I hope that helps. If my assumptions about your plan are not correct, get back to me.

Do funds charge a redemption fee for every withdrawal?

from Pete

Q:  I am retired and will be making periodic withdrawals from my funds. If a fund has a redemption fee does this get charged on every withdrawal or only when I close the account?

A: (Rick) It sounds like you own "B" share mutual funds, which have "back-end" sales load. A back-loaded fund does not charge any commission to buy, but there is a commission to sell. In almost all cases the back-end sale charge decreases from roughly 7% to 0% over a 5 to 10 year period.

If you liquidate shares of the fund prior to the end of the redemption penalty period, you will have to pay a back-end charge due at that time. However, some fund companies allow you to take the GAINS out of the fund without a charge. Other companies allow a small redemption each years with a charge (usually up to 10% of your initial investment). I suggest calling your fund company directly to find the rules of the fund that you own. One other piece of advice; since there are so many "pure" no-load mutual funds out there, so there is no reason to box yourself in. I do not recommend investing in any fund that has a front or back-end commission.

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