IRA Rollover Rules

Following IRA Rollover Rules

When someone goes through an IRA rollover, they are either changing jobs or retiring. As a result of this change, they are entitled to transfer, or “rollover” their previous employer’s retirement plan.  Whether you have a 457, 403b, or 401k rollover, it is very critical that when going through an IRA rollover, you avoid any negative tax implications from the IRS. With that in mind, there are a few IRA rollover rules that should be followed. When looking to go through an IRA rollover, you have three options that will allow for a safe and tax-free distribution of your plan. You can take a cash distribution, an indirect rollover, or a direct rollover. All of these options are very quick and easy.

If you choose the option of a cash distribution, the check for the funds is made payable to you. However, these distributions are subject to state and federal income taxes. It is mandatory for your employer to withhold 20 percent of your from your check as a required payment for taxes. Depending on what tax bracket you are set up in, you may have to pay back more than 20 percent. Also, if under the age of 59 ½, your funds are likely to have a 10 percent pre-mature withdrawal penalty. 

The second option you have within the ira rollover rules is an indirect rollover. You can choose the option of a cash distribution, and then deposit the funds into your IRA or any retirement plan within 60 days. Your employer still withholds the required 20 percent, however, if you rollover all of your funds including the 20 percent within 60 days, there is no subjection to taxes or IRS penalties. 

The third and final option you have for an IRA rollover is a direct rollover. With this option, you can choose to have your former employer make the check payable directly to the new guardian for the benefit of whatever retirement plan you may have. In this option, there are no tax with holdings, no taxes, and no penalties whatsoever on any of your funds. Whatever finances are put into your account will grow tax-deferred. This is probably the best option, with no taxes or penalties being put on your funds.

Whichever option you choose is up to you, but following the IRA rollover rules and paying attention to every detail can really help when transferring funds from your retirement plan.