What
is a Rollover IRA?
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A rollover IRA is an Individual Retirement Account or Individual
Retirement Annuity (IRA) invested with the money from your
employer-sponsored plan.
A Rollover IRA can be invested in mutual funds, stocks, bonds,
or other eligible securities, including CDs and treasuries.
This flexibility makes opening a Rollover IRA a good opportunity
to rebalance your retirement portfolio, by rolling your savings
into instruments not traditionally offered by employer plans.
Can
I get money out of my IRA before I am 59 1/2 without penalty?
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of page
Yes you can. Under the tax code rule 72 T you can begin systematic
equal withdrawals from your IRA before age 59 1/2 as long
as those payments are made for a minimum of 5 years or until
you reach the age of 59 1/2 whichever is greater. >>>more
info (forwards to 72T discussion)
What are
the different types of IRAs? top
of page
Traditional IRA. The
Traditional IRA allows individuals to make an annual contribution
up to specified maximum limits. Any potential earnings in
the IRA can grow tax-deferred, meaning that you do not pay
current tax on any account earnings until you take the money
out.
Traditional IRAs can help make it easier to maximize your
retirement savings by allowing any money you earn on your
IRA contributions to grow free from taxes within your account
until withdrawn. When your earnings aren't eroded by taxes
year after year, they can compound faster. Distributions from
Traditional IRAs are included in income at the time of withdrawal
and may be subject to a 10% early withdrawal penalty if you
are under age 59 1/2. As an incentive to contribute to Traditional
IRAs, Congress allows some people to deduct their Traditional
IRA contributions from their current income taxes, subject
to income limits.
The Roth IRA. As long
as your income doesn't exceed a certain level you can contribute
to a Roth IRA. Any potential earnings in the IRA can grow
tax-free.
Although you can't deduct contributions to a Roth IRA, you
can benefit from its other tax advantages. You won't owe any
taxes or penalties on the assets you withdraw from a Roth
IRA as long as you have met specific requirements. Earnings
from a Roth IRA can be withdrawn penalty free prior to age
59 1/2 for a first time home purchase (up to a lifetime limit
of $10,000) or qualified educational expenses. You can choose
to contribute both to a Traditional IRA and a Roth IRA in
the same tax year, but your combined contributions to all
your IRAs cannot exceed the annual allowable total.
Rollover IRA.
If you retire or change jobs, you may be eligible for a distribution
from your employer's retirement plan. A Rollover IRA is designed
to help you avoid mandatory withholding of 20% and preserve
the tax-deferred status of this distribution of eligible assets.
Spousal IRA. Beginning
with the 2002 tax year, married couples will be able to contribute
up to the new limits to each spouse's IRA, even if one is
a non-working spouse, provided combined contributions do not
exceed combined compensation.
Can
I contribute to my Rollover IRA once I rollover my 401k?
Yes you can. But you will have to follow the
contribution guidelines for IRAs and not for 401k plan participants.
How
do Rollover IRAs help me avoid paying taxes on my distribution
from my employer-sponsored plan?
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Rolling over your eligible distribution directly to a Rollover
IRA allows you to avoid a possible 10% early withdrawal penalty,
mandatory 20% withholding for federal income taxes, and to
postpone paying taxes on the amount rolled over until it is
withdrawn from your IRA. It also lets your eligible rollover
assets continue to accumulate any potential earnings on a
tax-deferred basis.
Can I
move an existing IRA from another institution using RetirementPlanRollover.com?
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Yes. There are two methods.
1. Direct (custodian-to-custodian) Transfer. By completing
our Transfer Form in addition to an IRA Application, you can
authorize RetirementPlanRollover.com to transfer your IRA
from the other institution to an IRA.
2. Sixty-day Rollover. You can withdraw your IRA from the
other institution and reinvest it in an IRA with RetirementPlanRollover.com.
You must complete the rollover within 60 days of receiving
the withdrawal to avoid income taxes and, if you are under
age 59 1/2, the 10% IRS early-withdrawal penalty. Only one
rollover is allowed per IRA in any 12-month period.
Can I just reinvest the check the company
sends me? top of page
You can do it within 60 days, but remember, if your company
plan makes the check payable to you, 20% of your eligible
retirement plan distribution will be withheld for federal
income taxes. You will need to make up the 20% withholding
out of your personal savings and then receive the tax credit
for your withholding when you do your taxes the following
April 15. The best way to avoid this withholding is to have
your employer make your qualified plan distribution check
out to the financial institution that you have chosen for
your new retirement plan rollover.
What
should I do with my after-tax contributions?
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The tax laws have changed so that you can rollover these funds.
However it is your responsibility to keep up with the portion
that is taxable and the portion of your account that is non-taxable.
A good idea is to keep your after tax contributions separate.
Consider receiving those funds in a check made payable to
you and funding a Roth IRA with those funds if you qualify.
What
is the exclusion allowance in my 403-B?
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The exclusion allowance permits contributions that would otherwise
be includible in the employee's gross income to be made to
a 403(b) plan on a pre-tax basis and, in addition, it establishes
a maximum limit on such contributions.
What
happens if my company goes bankrupt and I can no longer access
my 401k?
Fortunately
this situation is pretty rare, but it does happen. It can
be difficult for companies to come right out and say to there
employees that "hey things are kind of tight around here"
so bankruptcy can take employees by surprise. It can also
happen when an owner of a company passes away and fails to
leave a blue print for operating and managing the 401k plan.
If this happens the Department of Labor will in most cases
step in and appoint a new independent fiduciary. If you have
any concerns relating to a private-sector 401(k) plan, call
DOL's Employee Benefits Security Administration at 1-866-444-EBSA
(3272).
Can
I borrow against my IRA?
No. You
can not borrow against your IRA. You can however take an indirect
rollover from your IRA once per yea and avoid taxes and penalties
as long as the money is returned to an IRA within 60 days.
Can
my previous employer force me to take my 401k?
Well,
they cant actually force you, but they can legally send you
a check for your balance minus the 20% mandatory withholding
if the balance is less than $5,000.00. It is generally a good
rule to take your 401k with you when you go.
How
many times can I do an indirect rollover?
The IRS
allows you to make one 60 day rollover per year. Lets suppose
you have a IRA with annuity company A and it is valued at
100,000 and a second IRA with mutual fund company B. You take
a distribution of $10,000 from company A and roll it back
in within 60 days. You can not take any more funds from this
IRA for 365 days. However you can still take a 60 day rollover
from company B at anytime within the next year.
What
forms will I need for my taxes if I take a distribution from
my retirement plan or pension?
If
you take a distribution from a retirement plan tax will normally
be withheld at 20% rate. For pension distributions and social
security benefits you can choose to have tax withheld. The
IRS will want to see your 1099R to give you credit for the
tax withheld.
If
a 55 year old employee is laid off work due to downsizing,
is there a way to take distributions from the employer's plan
without incurring a penalty?
Yes, as
long as the plan assets remain with the employer and the plan
documents allow it. The employee may request distributions
directly from the employers plan. These distributions are
not subject to penalties for employees who are 55 or greater
and separate from service.
Are
loans withdrawn from an employer plan a taxable event to the
employee?
Loans
are not a taxable event to the employee as long as they are
paid back with applicable interest in a timely fashion to
the plan. 5 years is the maximum time allowed.
Is
a hardship withdrawal eligible to roll over to another retirement
plan?
Hardship distributions are not eligible
to rollover into an IRA or any other retirement plan.
Is
there any ability for an employee under the age of 55 to take
penalty free distributions from an IRA or employer plan?
Yes, a
series of substantially equal payment is one way to avoid
the premature distribution penalties. The code requires the
individual to withdraw an annual amount that is considered
"equal" or the same for a period of 5 years or until
the individual reaches the age of 59 1/2 whichever is longer.
Refer to section on 72T.
Do
the substantially equal payments stop if the individual becomes
reemployed with the same or another company?
The payments
continue for the greater of 5 years or until the individual
reaches the age of 59 1/2. Any modification to the distribution
will result in 10% penalties retroactive to the first distribution.
The election to make withdrawals prematurely has no bearing
whatsoever on whether the individual is employed or not.
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