Tips on IRA Rollovers

When considering establishing a Rollover IRA, it’s important to follow the rules.  Remember that Rollover IRA requirements can be complex.   Depending on the original source of the funds and the objectives of the IRA rollover, different requirements may apply.   If you follow the rules for rolling over an employer-sponsored retirement plan, you’ll postpone paying taxes and avoid fees and penalties. We encourage you to consult your tax advisor before establishing a Rollover IRA.

Arrange a direct transfer.  Ask your employer or the trustee of your existing account to transfer your assets directly to your new IRA account. You do have the option of getting a check and handling the rollover yourself, but if you choose that approach, your employer must withhold 20% of the total for income taxes. You’ll eventually get that money back, but only if you meet the deposit deadline.

Deposit within 60 days. If you get a check from your employer, you must deposit the full amount of your old retirement plan payout into your new rollover IRA within 60 days of the date the check is mailed to you. That means not only the 80% you receive, but the 20% that was withheld. If you don’t have enough money from other sources to make up the full 100%, any amount you don’t deposit will be considered a withdrawal. You’ll owe tax and perhaps an additional 10% penalty on that missing amount. In addition, any amount that’s not deposited within the 60-day limit loses its tax-deferred status permanently. In the case of a transfer of funds from a qualified retirement plan such as a 401(k), you should  arrange for the plan trustee to transfer the assets directly to the IRA trustee.

Keep IRAs separate.  You should keep your rollover IRA separate from any other IRAs you might have. If you don’t, you won’t be able to move the money into a new employer’s retirement plan.

Don’t mix taxed and pretax money.  You can only move pretax contributions made to a pension or retirement fund into a rollover IRA. If you’ve made any after-tax contributions, or if your employer has made supplemental contributions that aren’t tax deductible, that money has to be invested separately.