| If you don’t know the rules of the game, | | | | trustee” transfers. This simply means is that |
| it’s easy to get fouled out, and when it comes | | | | the financial institution holding your IRA assets will |
| to IRA Rollovers, those fouls can cost you big | | | | provide directions on how to transfer those assets |
| money if you are not careful. It’s inevitable, at | | | | to an IRA directly to another financial institution. |
| some point or another we might ditch one provider, | | | | This bypasses the need for you to take possession |
| advisor or fund company for another. Or we may | | | | of the funds (ie. receive a check payable to you). |
| leave one job for a new one or simply retire. If you | | | | In most cases, the transfers can be electronically |
| are planning to, or have already initiated an IRA | | | | sent directly to the new firm or Fund |
| Rollover, watch out for these common mistakes, | | | | Company. In other instances, a check may be sent |
| because one misstep can cost you dearly. | | | | to the investor, but payable to the new provider or |
| So what is a Rollover IRA? A rollover IRA is a special | | | | custodian for your benefit (ie. check payable to |
| type of IRA that is used to receive distributions from | | | | Fidelity FBO John Smith). |
| an employer sponsored qualified plan, such as 401k, | | | | Frankly, the “trustee-to-trustee” method this |
| 403b, defined benefit or profit sharing plans. | | | | is the easiest way to transport your money from |
| The Rules60 day Rule: Whether you’re rolling | | | | one bucket to the next if you are merely moving |
| over a company retirement account or IRA assets, | | | | your IRA from one custodian to another. A |
| you have a maximum of 60 days in which to | | | | “transfer” is not necessarily considered a |
| complete the rollover to another IRA if the | | | | “rollover”, can be done an unlimited number |
| distribution is made directly to you, instead of the | | | | of times, and is not reported as a distribution, which |
| rollover IRA account. Failure to complete the | | | | therefore exempts you from the one year waiting |
| rollover in this time frame will result in taxes and | | | | rule. |
| possibly penalties. Specifically, you must include the | | | | Not All Rollovers are Created EqualPay particular |
| amount of the distribution as ordinary income on your | | | | attention to rollovers from employer plans like the |
| taxes, and if you are younger than 59 ½ you also | | | | 401k. Rollovers are slightly different than “direct |
| getsacked with a 10% penalty on the withdrawal. | | | | rollovers”. Company 401k direct rollovers allow |
| Any rollovers you make involving a traditional IRA | | | | you to transfer your retirement funds directly over |
| must be reported on your tax return for the year | | | | to your new employer’s retirement plan or into a |
| the distribution is made. Your financial institution will | | | | rollover IRA plan as a trustee to trustee transfer. |
| typically issue a 1099R documenting the distribution, | | | | With a 401k direct rollover, a retirement distribution |
| and the receiving financial institution will issue a form | | | | check is directly made payable to your new qualified |
| 5498 documenting the receipt of the funds in the | | | | retirement plan or custodian. Conversely, with an |
| new account. | | | | indirect rollover, your 401k plan proceeds are |
| One Year Waiting Rule: You may not make another | | | | distributed to directly you, but the law requires that |
| rollover from the same IRA to another IRA if you | | | | the plan administratorwithhold 20% of your funds in |
| have already conducted a rollover (full or partial) from | | | | an indirect rollover which is sent directly to the IRS. |
| that same IRA account. The exception to this rule | | | | This means, that in order to satisfy the 60 day rule, |
| is a distribution from an employer sponsored qualified | | | | you’d have to deposit not only the check |
| plan. | | | | proceeds from the 401k, but the money withheld for |
| Same Property Rule: IRA Rollovers from one IRA | | | | taxes! Ouch. |
| to another must consist of the same property. | | | | The bottom line is this, when it comes to rollovers, |
| Specifically, this rule prohibits your ability to take a | | | | you better know your stuff--or at least have the |
| distribution from your IRA and purchase other assets | | | | proper oversight with a competent advisor. The |
| with that cash, only to later deposit the newly | | | | IRS is just waiting for you to botch the transaction |
| acquired assets into another IRA. The IRS frowns | | | | so they can collect their precious taxes and penalties. |
| upon this transaction and will consider this as a cash | | | | That could spell disaster for you, both in terms of |
| distribution, which of course, will cause a taxable | | | | taxes and the wasted opportunity to grow your |
| event. | | | | IRA’s on a tax deferred basis. So, before you |
| Hands down, the most effective way to avoid IRA | | | | roll….do your homework. |
| transfer blunders is to request “trustee-to | | | | |