IRA Rollover

Understanding the terminology is important and necessary when dealing with your IRA.  There are steps to follow in an IRA transfer or IRA rollover that are critical to maintaining the IRA’s tax deferred status, so that there will be no tax liability for the direct rollover or transfer.

What is an IRA Rollover?

An IRA Rollover occurs when an employee either changes jobs, is terminated, or retires and is then entitled to “rollover” or transfer their previous employer’s retirement plan into an IRA. It is a tax-free transfer of funds from the former employer’s retirement plan – a 401k, 403b, 457, or a Thrift Savings Plan – into an IRA. By transferring, or rolling over, the previous employer’s retirement plan into a rollover IRA, you preserve the tax deferred status of this retirement account. An added benefit is that this is an opportunity to consolidate multiple retirement accounts into one, more manageable, IRA. Leaving your retirement assets with a former employer limits your options, whereas a rollover IRA offers you significant flexibility when managing your individual retirement account. Your rollover may be into either a deductible or nondeductible IRA, a Roth IRA, or a self-directed IRA.

IRA Transfer

What is an IRA Transfer?

Simply stated, it is the transfer of assets from one IRA into another IRA. An IRA transfer from one financial institution to another is made tax-free and there is therefore no tax liability involved in the process.

How is an IRA Transfer accomplished?

There are two options, and both methods accomplish the same goal: a tax-free transfer of assets from one IRA to another IRA.

  1. Indirect Transfer also called a 60 day rollover. Assets from your IRA are paid to you in check form. You have up to 60 days to reinvest this money back into an IRA. You must complete the reinvestment within 60 days in order to avoid taxes and penalties that will otherwise apply.
  2. Direct Transfer A direct transfer is the movement of retirement assets from one IRA directly into another IRA. In most cases this is the better option. It eliminates the need to comply with the 60 day rule, and will help you avoid the possibility of incurring taxes and penalties if the indirect transfer is not properly executed. In this option, the trustee/custodian will transfer your IRA assets directly to the financial company where the new IRA is held, and you never take physical possession of your retirement assets.

Why consider an IRA Transfer?

If you are considering an IRA transfer, ask yourself:

  • Am I receiving guidance and advice by a financial professional from the institution that holds my IRA? Are the educating me on investment options?
  • Is my IRA portfolio performing up to my expectations?
  • Would I like to increase the number of investment options available to me?
  • Would I be better able to manage and monitor my portfolio with assets in one IRA?