IRA Rollover Defined
An IRA (Individual Retirement Arrangement/Account) rollover is the transfer of funds from a retirement account into a Roth IRA or a traditional IRA. This is done by a check written by the custodian of the contributing account. This check is then taken by the account holder and deposited into another IRA account. This can also be done through direct transfer, which is the simpler method.
An IRA rollover can occur when funds are moved from one retirement account such as a 401(k) and moved to an IRA. Most rollovers are done when the retirement account holder switches jobs and want to move assets to an IRA. Rollovers also occur when account holders want to switch IRA’s or if the account holder has found an IRA that offers better investment opportunities and benefits.
To begin an IRA rollover, you will need to ask your account holder to write a check and send it to the IRA. If the rollover is IRA to IRA, the account holder from the first plan sends the rollover amount to the account holder from the second plan. If you wish to complete this process yourself, then you will need to have the check sent to you. You will then cash the check and deposit the funds within 60 days. If this process is not completed within 60 days, income taxes will have to be paid on the amount and the IRS will treat it as an early distribution.
Rollovers and Taxes
When completing a direct transfer, no taxes are withheld. The entire amount withdrawn is directly transferred to the other account as long as the process is completed within 30 days. If the transfer is not completed as a direct transfer, the IRS requires a withholding penalty of 10% from any IRA and 20% from non-IRA retirement accounts. The amounts will later show up as taxes paid during tax time.