Retirement Account Rollovers

IRA Rollovers

If you have switched employers or simply want to start a self-directed IRA plan, you have come to the right place. IRA rollovers are nothing new and are most often occur when when an employee exits a company and wants to leave with their retirement funds, instead of allowing them to remain in their old workplace plan. This is generally a fairly painless process. However, we help to educate our clients on the nuances and opportunities available for the hows of setting up your retirement plan when the rollover occurs.

Rollover Options

You are allowed to rollover from the following types of retirement plans into a tax free Traditional IRA:

  • Pre-tax qualified plans, including a 401(k)
  • Pre-tax 457(b)
  • Pre-tax 403(b)
  • SIMPLE IRA (participants are permitted to rollover after two years)
  • SEP-IRA
  • Traditional IRA

Participants are also permitted to rollover funds in the plans listed below into a Roth IRA without taxes:

  • Roth qualified plans, including a 401(k)
  • Roth 403(b)
  • Roth 457(b)
  • Roth IRA
  • Self Directed IRA

Bear in mind that Roth Rollover IRAs from any kind of retirement account must be included into your taxable income when you withdraw funds from this account. This is because funds put into a Roth account are always invested in an after-tax basis.

In addition, if your plan document permits, you have the opportunity to rollover your untaxed distributions from a traditional IRA into a variety of pre-tax qualified plans from your previous employer–with the exception of SIMPLE IRAs.

Retirement Distributions that are not subject to a Rollover IRA

Not every retirement account’s distributions are eligible for a rollover. Participants are not allowed to rollover on the whole or part of the distributions listed below:

  • A distribution that meets a minimum requirement
  • Distributions which are deemed to be for hardship
  • Considerably equal periodic distributions that are calculated on the expectancy of your lifetime, or the joint life expectancy of you and your beneficiary, or that which has been paid over a period of 10 years or greater
  • A distribution which was intended to correct excess distributions or investment gains that are allocable
  • Distributions that are loans
  • Employer securities’ dividends
  • The amount to ensure life insurance coverage

Rollover my IRA

Let us help you rollover your IRA today!

It’s quite simple to get your IRA converted. All that is needed is for you to send in a request form from either through your online brokerage account or ask for one from the custodian or your account or benefits administrator at your workplace.

You have two choices in how you can receive your rollover distribution:

Option 1–Get a payment in your name. You can request to have your rollover distribution paid to you via check that is made payable in your name. Subsequently, you can put a payment into the new account that you have for retirement.

In the event that you choose to rollover funds that are part of an employer plan, this choice deems it necessary that the payer withhold 20% of any amount that is subject to taxation, regardless of whether you planned to make a rollover contribution at a later point.

For instance, if you decided you wished to rollover $20,000 from your 401(k), the custodian of your account is obliged to subtract $4,000 ($20,000 x 20%) and give you the remaining balance of $16,000.

When the rollover is finalized, the amount that was withheld will be returned to you when you file your tax return (this is on the assumption that you do not owe taxes of a greater amount than the sum are you are requesting to be refunded). Take note, that you will have to wait months before you receive your tax refund and therefore miss the chance to take part in potential investment gains while you don’t have your money in hand.

You can contribute funds from other sources to make up the amount that is withheld. For example, if there is $4,000 in your savings account, then you can use that money and deposit it into an account reserved for retirement as a replacement for the money that is being withheld in your rollover tax.

Option 2–Get a direct rollover. It is a possibility to have a check, in the amount of your rollover funds, made out directly to your new account for retirement. Ensure that the check is written in the proper format so that your account custodian will not have a problem accepting it. You can then collect the check and forward it to your new account.

This format is always the best choice as it prevents you from having any tax withheld. At year’s end, your account custodian will give you either the Form 1099-R or Form 5498 so that you can record the rollover. It is not possible to deduct a rollover contribution from the part of your income that can be taxed, however it is still mandatory that you document it on your tax return.

Time Limit on the IRA Rollover

The primary rule to maintaining your retirement rollover is that it is strictly mandatory that you put the contribution into your new account no later than 60 days after a distribution from your old account is given to you. This is a strict rule and there are no allowances for weekends or holidays.

After 60 days, the money that you received as a distribution is considered to be a taxable sum (with the exception of after-tax amounts) and may also be eligible for a 10% early withdrawal penalty on top of that sum if you are under the age of 59 ½ years. SIMPLE IRA distributions that you get within the first two years of participation will incur an even greater penalty of an added 25% tax.

For example: If you leave your work position and chose to roll over your 401(k) retirement account into a traditional IRA, the distribution will be given to you on December 1, 2012. For you to stay clear from being obliged to pay tax on the distribution in 2012, it is imperative that you deposit your funds into your traditional IRA at latest on January 30, 2012 (the 60th day after December 1).

An Explanation on the IRA Rollover Waiting Period

An additional point to take note of is that whenever you roll over money from one traditional IRA into another, there is one year waiting period that that applies before it is possible for you to perform another IRA Rollover from the same account. On top of that, within that one-year waiting period, it is normally not possible for you to make a rollover from the account into which you put in the rollover funds.

However, whenever you roll over an amount from an employer plan, you are not subject to the waiting period rule. Over the course of a year, you are permitted to make over one distribution from the same workplace plan.

The kinds of assets that it is possible to rollover

If there is a mixture of assets tied to your retirement account, for example both cash and property, you may have the choice to rollover the entire sum or part of it, in any amounts that you choose. Take note, that it is not possible to substitute one type of asset for another.

For instance, if real estate was provided to you from an eligible Rollover IRA distribution, you may have the option to it in its entirety, or in parts, or even rollover the amount from the sale into an account designated for retirement. However, you are not allowed to keep the property and substitute your own cash for it. It is mandatory to rollover that same property, or put it up for sale and rollover the money from the sale.

Turning a Traditional IRA into a Roth IRA

In cases where you roll over a part of a traditional IRA into a Roth IRA, the term for it is called a conversion contribution. There are no limits placed on your income in order for you to perform a Roth conversion; but take note, that there is a yearly income limit for putting in contributions to a Roth IRA for every tax year.

As discussed above, it is mandatory that you pay income tax on any amount that hasn’t already been taxed whenever it is converted from a traditional IRA to a Roth IRA. However, it is possible for you to have to pay an added 10% penalty for early distributions if you roll over the money at most 60 days after the initial withdrawal.

Reasons to Rollover

Whenever you cash out an old retirement account, you are subject to all sorts of unnecessary taxes and penalties. Rolling over the amount into a new account gains you the chance to keep more of your own money. It’s fairly easy to do a rollover and it provides you the opportunity to continue making tax-advantaged contributions, so that you can create a stable nest egg for the next chapter in your life as quickly as possible.

Let us help you rollover your IRA today!

It is also worthy to note that if funds in your traditional IRA are transferred from trustee to trustee, and is not given to you, there is no waiting period. It does not matter if the trustee asks for it or if you initiate the process, a trustee-to-trustee transfer is not equivocated to a rollover and therefore you can avoid the one year waiting period in such a situation.