What is a Rollover IRA?
In a retirement plan that permits an individual to withdraw money when changing jobs or retiring, that person can postpone paying income taxes on the amount distributed if the money is transferred into a Rollover IRA (or into another retirement plan). An individual can also transfer money from one IRA to another.
What limits are there on rollover contributions?
Generally an individual must make the rollover contribution by the 60th day after the day the distribution is received from the retirement plan or IRA. After 60 days, the distribution is treated as taxable. Visit the IRS Publication 590 page to find out about extensions and waivers of the 60-day rule.
An individual cannot do more than one rollover from one IRA to another in a calendar year. However, there is no limit on the number of rollovers from employer-sponsored retirement plans to IRAs in a given year.
What is a partial rollover?
If an individual withdraws assets from an IRA, that person can roll over part of the withdrawal tax free and keep the rest of it. The amount kept will generally be taxable (except for the part that is a return of nondeductible contributions). If the individual is under age 59 ½, the amount kept may be subject to a 10% penalty tax for early distributions.
What is a direct rollover?
If a retirement plan allows an individual to withdraw money when changing jobs or retiring, it must give that person the option to have the administrator of the plan pay all or part of the money directly to an IRA. If the individual chooses the direct rollover option, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the IRA.
Will participants be notified of their right to have their retirement plan money rolled over into an IRA?
Yes, before making a rollover distribution, the administrator of a retirement plan must provide participants with a written explanation of their right to choose whether to withdraw the money or transfer it to a Rollover IRA. The plan administrator must provide participants with this written explanation no earlier than 90 days and no later than 30 days before the distribution is made. See the IRS Publication 590 to find out what is required in the notice.
Are there other kinds of Rollover IRAs?
Yes, rollover distributions can be made from a deceased spouse's retirement plan, from a non-spouse's retirement plan (if they are listed as a beneficiary), or from an ex-spouse's retirement plan if a divorce court has awarded that person a share of the IRA.
There are exceptions to all the rules stated above, to find out about required distributions and other information about tax treatment of rollovers, please review this IRS Publication 590 page.
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Did You Know?
A joint-and-survivor annuity is an annuity that pays a monthly benefit over the lives of the participant and his or her surviving spouse. This is the default form of benefit for married participants in most defined benefit pension plans. Because it lasts for the life of both the worker and the spouse, a joint-and-survivor annuity typically results in a lower monthly benefit payment than a single-life annuity.