KnowHow® News

March 2014: In the Know

5 Key Aspects To a Rollover

If you decide to roll over funds from a retirement account into either a Traditional or a Roth IRA there are some aspects you want to make sure you're familiar with.

  1. Know the differences…
    A 401(k)-to-IRA roll over does notequal an IRA-to-IRA transfer. Typically, employer plans such as the 401(k) can be rolled over directly or indirectly. In a direct roll over, the old custodian writes a check made payable to your new custodian. In an indirect roll over, the old custodian writes a check directly to you. In this instance, the law requires the plan administrator withhold 20% of funds, sent directly to the IRS
  2. …but also the similarities.
    IRA rollovers from one IRA to another must be of the same property (e.g., same stock for same stock). This means you cannot take a distribution from one IRA and buy other assets for the account with that money, then roll over those assets into your new IRA.
  3. Wait a full year…
    Just one rollover per year is allowed per IRA. You have to make sure you wait a full 365 days per account before you can make a full or partial roll over again. (This yearly restriction does not apply to direct rollovers from Qualified Retirement Plans, such as 401(k)s. Nor does it apply to direct transfers of IRAs, where the assets are transferred directly from one IRA account to another IRA account.)
  4. …then, don't wait longer than 60 days.
    From the time you receive the funds, you have 60 days to roll over all or part of the distribution into an eligible IRA or retirement plan.
  5. And, finally, don't forget about the RMD.
    If you're age 70.5 or older, check with your plan administrator before beginning the rollover process. There may be tax implications (for instance, Required Minimum Distributions are generally not eligible for rollovers).

Remember, you have several other choices you should consider, including leaving your funds in your existing 401(k), if permitted; rolling over assets into a new employer's plan; or cashing out your 401(k). This may all sound a little complicated, which is why it's important for you to do your research and, if necessary, consider consulting a tax advisor before deciding whether to roll over this year.

Need More Information? Keep Learning

Considering a Rollover? Start here.

Scottrade does not provide tax advice. The material in this article is for informational purposes only. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.

Before making any rollover decisions, investors should research and consider all available retirement options carefully. Your decision should reflect consideration of various factors, including the benefits and penalties involved. Some of these factors include, but are not limited to, investment or account related fees and expenses, differing levels of service available, withdrawal penalties, creditors and legal protections, required minimum distributions, and factors related to owning employer stock. The importance of these factors will vary depending on your individual needs and circumstances. Tax consequences may vary depending on state law and your individual situation. Scottrade does not provide tax advice. Please consult your tax or legal advisor for questions concerning your personal tax or financial situation.

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