Rollover IRA: Saving, Investing, Planning

Erollover.com 2008 Rollover IRA: Saving, Investing, Planning If you’re preparing to retire, already retired or leaving your current employer, you may need to decide what to do with the money in your workplace retirement plan. Should you cash out? Keep your money where it is? For thousands of Americans, the solution is a rollover IRA (individual retirement account). * Guidelines * Qualifying Retirement Plans * Disqualified Contributions * Opening a Rollover IRA Guidelines • If your plan makes a distribution directly to you, a rollover must occur within 60 days from receipt of the check. • Income taxes are due at withdrawal, and a 10% federal tax penalty can apply to withdrawals made before you reach age 59½. Also, once the funds are withdrawn, they no longer grow tax-deferred. For example, $20,000 in a tax-advantaged account can be reduced by as much as 35% not including applicable state and local taxes. • More information is available from IRS Publications 590 and 575, calling the IRS at 800-829-3676 or visiting www.irs.gov. Qualifying Retirement Plans What retirement plans may be rolled over to an IRA? • Pension plan, profit-sharing plan, 401(k) or stock bonus plan • Traditional IRA (not Roth) • 401(a) or 403(a) • 403(b) • Governmental 457(b) • SEP IRA • SIMPLE IRA; if more than 2-years-old, or 25% penalty applies Disqualified Contributions Back To Top The following are not eligible for rollover into an IRA. • A series of substantially equal periodic payments over your life expectancy • Annuity payments for a period of 10 years or more • Required minimum distributions. • Hardship or unforeseeable emergency distributions • Corrective distributions (necessitated by the plan’s discrimination testing failure or to adjust excess plan contributions) • Loans from employer-sponsored plans • Employer security dividends • P.S. 58 costs (life insurance) FAQs What is a rollover IRA? A rollover IRA is an individual retirement account set up to receive funds from a tax-qualified retirement plan, which retains the tax-deferred status of that plan. But the transferred funds must be made payable to the rollover IRA and not to yourself. If the funds ar emade payable to you, you must roll the funds over within 60 days and the payor may be required to withhold 20% of the distribution. You would have to make up the 20% with funds of your own to avoid paying tax on the amount not withheld and claim a refund or credit on your Form 1099. Also, if you are younger than age 59½, a 10% federal tax penalty may apply to the amount not withheld if not made up in the rollover and if no exception applies. Why is tax deferral important? Income tax on your account’s earnings are deferred until withdrawal. So money that otherwise would have been paid to Uncle Sam remains in your account, where growth of the accumulated funds is accelerated by compounded interest. This feature generally helps tax-deferred accounts grow faster than taxable accounts, and may offset inflation, which can reduce your future buying power. Who can set up a rollover IRA? Persons who want to move eligible assets from a retirement plan. If a plan makes distribution directly to you, a rollover must occur within 60 days from receipt of the check. Can multiple IRAs be consolidated into a single rollover IRA? Generally, yes.

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