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How Do I Do a Rollover?
The term "rollover" with regard to your IRA or employer-sponsored retirement plan is typically used for two different actions. One is taking money from an IRA account and then moving it to another IRA account. The other is moving money from an employer-sponsored retirement plan to an IRA account, or into a new employer’s plan.
If you want to roll over an IRA into a new IRA, either traditional or Roth, you need to request a check from the current custodian or institution that handles your IRA. That check will be made out to you personally. You are then free to do what you want with that money. If you reinvest the amount you received into another IRA account within 60 days of when you received the check, you will not be subject to income taxes or the 10% tax penalty if you are under age 59˝.
In many cases you may wish to “transfer” your money directly from one IRA custodian to another, without taking the “cash in hand” yourself. By doing a "transfer IRA" you avoid the risk of a 10% income tax penalty and you don't have to worry about the 60-day requirement.
If you want to have money rolled over from an employer-sponsored retirement plan, this is called a "direct rollover" and these are the steps we generally suggest:
- Find out if your existing plan allows you to do a rollover.
- Talk with a tax professional to be sure you know exactly what assets in the plan are qualified (or eligible) to rollover.
- Decide if you are going to open an IRA with this money or if you want it to go into a new employer-sponsored retirement plan.
- If you decide to add it to your new employer’s plan, check with your new employer to see if the rollover is allowed into their plan.
- Complete whatever paperwork is required to set up the new IRA or to enroll in the employer plan.
- Submit the proper paperwork to the existing employer plan to request a check made payable to the new custodian or employer plan for the amount that is eligible to rollover. Generally they will send the check to the new custodian. If they send the check to you, simply take it in to
A Big Red Flag!
Be aware that if the check is made payable to you, instead of the new custodian, the employer must withhold 20% to cover your federal income tax liability. You then have 60 days to replace the 20% that was withheld along with the 80% balance and put it into an IRA or employer retirement plan.
If you’re not able to make up the 20% difference, you will be subject to income taxes on that amount and may also be subject to a 10% income tax penalty if you are under age 59 ˝. So, be sure the check is made out correctly.
If you decide to rollover your employer-sponsored retirement plan into a traditional IRA, a financial professional can help you complete the required paperwork and make any investment decisions needed.
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