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A rollover is a tax-free (reportable) movement of cash and/or assets from one retirement plan to another. The IRA rollover is not taxable but is reportable on your tax return. Unlike transfers, you receive the money and/or asset(s) before rolling them into an IRA or other eligible retirement plan. In order to preserve the tax deferred status of the cash and/or assets, you must deposit (rollover) the assets into the new retirement account within 60 days of receipt.
Thanks to provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), retirement plan assets can now move more freely between various types of employer sponsored retirement plans, such as profit sharing, 401(k), 403(b) - tax deferred retirement plans available to employees of educational institutions and certain non-profit organizations, and 457(b) plans -deferred compensation plans of state and local governmental entities. Any taxable distribution paid to you from your employer’s retirement plan will be subject to a mandatory withholding tax of 20%, even if you rollover the funds (within the 60 day rollover period) into an IRA. If you want to defer tax on the entire taxable portion, you will need to add funds from other sources to the IRA rollover equal to the amount withheld for tax. An alternative to this option is simply to authorize a “direct rollover.” A direct IRA rollover is a distribution from your employer’s retirement plan that is remitted directly to your IRA custodian. You will still receive a 1099-R form from your employer; however, no withholding tax will apply.
Note: Any taxable amount that is not re-deposited into a retirement account within 60 days of receipt must be included as taxable income and reported on your tax return. In addition, if you are under age 59½ at the time of distribution, any taxable portion that is not rolled over may be subject to an IRS imposed 10% tax for early distribution.
Qualified IRA Rollover Plans
Contribution Guidelines
Distribution Requirements |
