Tricia J. Philipson, MBA, CDFA - IRA Rollover : Article: IRA Rollover

What Is an IRA Rollover?

If you leave a job or retire, you might want to transfer the money you’ve invested in one or more employer-sponsored retirement plans to an individual retirement account (IRA). An IRA rollover is an effective way to keep your money accumulating tax deferred.

Using an IRA rollover, you transfer your retirement savings to an account at a private institution of your choice, and you choose how you will invest the funds. To preserve the tax-deferred status of retirement savings, the funds must be deposited in the IRA within 60 days of withdrawal from an employer’s plan. To avoid potential penalties and a 20% federal income tax withholding from your former employer, you should arrange for a direct, institution-to-institution transfer.

Previously, you were only able to roll over funds from an employer-sponsored plan to a traditional IRA. However, since 2008, direct rollovers to a Roth IRA have been allowed. Starting in 2010, everyone is eligible for a Roth IRA rollover as there are no income limits (although income limits still apply to contributions to a Roth IRA). Keep in mind that ordinary income taxes are owed on all amounts rolled over to a Roth IRA.

An IRA can be tailored to your particular needs and goals and can incorporate a variety of investment vehicles, as opposed to the limited number of options available in many employer-sponsored retirement plans. In addition, tax-deferred retirement savings from multiple employers can later be consolidated.

Over time, IRA rollovers may make it easier to manage your retirement savings by consolidating your holdings in one place. This can help cut down on paperwork and give you greater control over the management of your retirement assets.

Distributions from traditional IRAs are taxed as ordinary income and may be subject to an additional 10% federal income tax penalty if taken prior to reaching age 59½. Just as with employer-sponsored retirement plans, you must begin taking required minimum distributions from a traditional IRA each year after you turn age 70½.

Qualified distributions from a Roth IRA are free of federal income tax (under current tax laws) but may be subject to state, local, and alternative minimum taxes. To qualify for a tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase ($10,000 lifetime maximum). The mandatory distribution rules that apply to traditional IRAs do not apply to Roth IRAs.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

Tricia J. Philipson is a Registered Principal offering Securities & Advisory Services through American Investors Company, Member FINRA/SIPC, Registered Investment Advisor. Branch Location: 2344 Saddleback Drive, Danville, CA 94506. In this regard, this communication is strictly intended for individuals residing in the state of California.. No offers may be made or accepted from any resident outside California.

IMPORTANT CONSUMER INFORMATION:

A broker-dealer, investment adviser, BD agent, or IA rep may only transact business in a state if first registered, or is excluded or exempt from state broker-dealer, investment adviser, BD agent or IA rep registration requirements, as appropriate. Follow-up, individualized responses to persons in a state by such a firm or individual that involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without first complying with appropriate registration requirement, or an applicable exemption or exclusion.

For information concerning the licensing status or disciplinary history of broker-dealer, investment adviser, BD agent, or IA rep, a consumer should contact his or her state securities law administrator.