Question: What is an IRA Rollover?
Answer: An IRA Rollover, otherwise referred to as a Rollover IRA, is an account through which you can move your financial assets from a qualified and employer – sponsored retirement plan (like the 401k plan) by rolling over your funds into an IRA. It, therefore, preserves the tax – deferred status of your assets and allows you to avoid early withdrawal penalties and current taxes on payouts you receive once you retire or change jobs. Within this account, you can choose from numerous investments, including mutual funds, CDs, bonds and stocks.
Question: What is the Difference between a Transfer of Assets and an IRA Rollover?
Answer: A rollover occurs once you move funds from one retirement plan into another, such as from your 401k to a Rollover IRA. These distributions are typically reported to the IRS and may, therefore, be subjected to federal income taxation.
On the hand, a transfer of assets occurs once you transfer funds between two accounts (of the same type), such as from a Traditional IRA into another. These transfers can be effected as often as you prefer. Additionally, they won’t be reported to the IRS because you will not be taking possession of the money.
Question: What Fees Are Associated with an IRA Rollover?
Answer: Opening and maintaining an IRA Rollover carries no fees. However, you will be required to pay the transaction charges for depositing or withdrawing into your new account, such as opening a money market fund or CD, or trading stocks.
Question: What Investment Types Are Available in an IRA Rollover?
Answer: There are numerous investment options to choose from, depending on your goals and the risk tolerance you are looking at. These options include mutual funds, ETFs, CDs, bonds and stocks.
Question: Which Retirement Plan Types Can I Roll Over?
Answer: If you will receive qualifying distributions from them, the eligible retirement plans include QRPs (Keoghs / Qualified Retirement Plans), money purchase plans, profit-sharing plans, 403(b) plans, and 401(k) plans. Other plans might not be eligible. These include defined benefit plans and ESOPs (Employee Stock Ownership Plans). However, you can still roll over your governmental 457b qualifying distributions and after-tax dollars. Get in touch with a plan administrator today to check whether your current plan is eligible for an IRA rollover.
Question: What is a 60 – Day Rollover?
Answer: This type of IRA Rollover will allow you to transfer money between your IRA accounts. This means that you will be able to take distributions from one IRA account, roll over the distribution amount and transfer it to the same IRA or to a different account. The process has to be done within 60 calendar days after you receive the distribution. This one off 60-day rollover can, however, only happen once in every rolling 12 – month period for all your IRA accounts. You should talk to a tax advisor to find the best solution depending on your own personal financial situation.
Question: What is a Direct Rollover?
Answer: A direct rollover does not allow you to actually take possession of the retirement assets. Instead, you will place a request with the administrator or trustee of your employer – sponsored retirement plan and they will deliver the distribution either to another eligible retirement plan or to the financial provider who holds your Rollover IRA. This move is smart because you won’t take direct possession of the assets. This means that you won’t be required to pay the 20% federal tax withholding when you perform this type of rollover.
Question: What is an Indirect Rollover?
Answer: An indirect rollover occurs when you get the assets from our employer – sponsored retirement plan and roll over a portion or all of the assets into a different eligible retirement plan. It has to happen within the 60 – day period after you receive the distribution. Sometimes, the law requires that your employer withholds 20 percent of the amount for purposes of clearing federal income tax. Still, you will be able to recover this amount after you confirm that you rolled over the assets you received plus the deducted amount within the 60 day period. When you fund your new retirement plan with all of the payout, you will then receive a refund. This is typically in the form of tax credit once you file your annual tax returns. Consider talking to a professional tax advisor in case you need help making a decision about the best move to make depending on your financial situation.
Following are a few helpful Individual Retirement Account links:
The above information is not intended to substitute specific individualized tax, investment or legal planning advice. Where you need specific advice, please consider consulting with a professionally qualified and certified investment manager, financial planner, CPA or tax advisor.