What is an IRA Rollover?
A rollover requires a distribution from an IRA or qualified plan, which is then rolled over into an IRA account within a 60 day period to complete the rollover transaction. While the rules for rollovers and transfers differ, they accomplish similar objectives. Both rollovers and transfers facilitate the tax-free movement of IRA monies from one trustee or custodian to another.
Learn how an IRA rollover can provide better control and flexibility for your retirement plan. An IRA rollover is the phrase sometimes used when an individual who has a 401k plan wishes to “rollover” their retirement plan into a new IRA. This process is most commonly referred to as a “401k rollover” or an “IRA rollover”, and normally occurs when an individual changes employers or retires and wants to better control how his or her retirement savings are invested. If you leave a job for whatever reason and have a 401k account, you traditionally can decide between taking a lump sump (with possible tax penalties), to keep the funds with your old employer (if they allow this), or to arrange a IRA rollover into a new IRA. An IRA is not an investment itself, but merely an account that holds future investments on your behalf, such as stocks, bond, annuities, mutual funds and money market funds. The advantage of the IRA rollover is that you can avoid any immediate tax liabilities, and keep your
An IRA Rollover is a tax-free transfer of funds from a tax-deferred plan, such as a 401(k) plan, to a traditional IRA. An IRA Rollover occurs when an employee changes jobs and is entitled to a distribution from the old employer’s 401(k) plan. By doing an IRA Rollover, the funds can be transferred tax-free to the employee’s own IRA. This means the funds can continue to grow on a tax-deferred basis inside the IRA. It also means that the funds are under the control of the employee with respect to investment decisions and future distributions. The term “IRA Rollover” can also be applied to a transfer of funds from one IRA to another IRA. This too can be done on tax-free basis under a different set of rules that apply to IRA-to-IRA rollovers. Those rules are covered separately.
An IRA Rollover occurs when the owner of the IRA receives the check (funds) from his or her former custodian. He or she then has 60 days from the date of check issuance to redeposit IRA funds into another IRA. If the 60-day rollover rule is not met then the IRA funds become taxable income for the individual on his or her tax returns for that year.
