Rules, Tips, and Cautions about Rollovers to IRAs

Are you ready to retire? These are the rules and some tips to make your rollover smoother. Rollovers can be confusing. Rollovers are possible from qualified plans. Here, I’ll focus on rollovers to qualified plans such as 401k, pension and profit-sharing plans. The rollover will take place to a Roth IRA, traditional IRA, or IRA. It is easier to focus on a common scenario for rollovers than it is to discuss the various rollover scenarios. See texas gold depository ira to get more info.

You have worked hard and have a substantial 401(k). Now you’re ready to retire. Your plan is to transfer your 401k into an IRA. What are the rules for this? What are your options What are the warnings?

The Rules

You must transfer assets from your 401k into an IRA within 60 days. Your rollover would be treated as a distribution if it is not done within this timeframe. It would be subjected to tax and, if under age 59 1/2 a 10% early distribution penalty.

If your plan assets were invested in a bankrupt institution, the IRS will allow you to keep some of your money. The 60-day clock doesn’t run while your money is in limbo. Although this might not be a very common occurrence, it is still reassuring to have.

Rollovers can be done in the most efficient way possible by transferring funds from trustee to trustee. 20% withholding will be required if you receive qualified plan proceeds directly.

Your Choices

You had only two options to accept your qualified rollover up until 2008: a traditional IRA or a SEP IRA. It cannot be transferred to a Roth IRA.

The Pension Protection Act of 2006. provides that rollovers of qualified plans can be rolled to a Roth IRA from after 2007. There is a workaround until then. Your plan assets will be transferred to a traditional IRA (or SEP IRA) and then rolled into a Roth IRA. Keep in mind that Roth IRA assets that are rolled into them are taxable.

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