Retirement Plan Rollovers (for tax-deferred accounts)

Leaving a job or retiring represents a big change in your life, and chances are you will need to decide what to do with your existing retirement account. 

Rollover Options:

• Leave the retirement funds in your old plan
• Roll the funds over into an IRA (Individual Retirement Account)
• Roll the funds into your new employer’s plan (if the receiving plan allows)
• Cash Out – be careful with this option

A “direct” rollover or trustee-to-trustee rollover allows you to roll over the account without ever seeing or touching the funds.  Generally, this is the preferred method.

Word of Caution

If you elect to receive a check from your former employer, they are required to withhold a mandatory 20% for taxes before sending you the check, which triggers a taxable event for you.  However, if your intent is to rollover the funds into an IRA or another tax-deferred retirement account, you will need to come up with the 20% of funds withheld from other sources to make the balance whole (before taxes) again. Plus, if you are under the age of 59 ½, the IRS will assess an additional penalty of 10% for early withdrawal.  Consult with a tax professional prior to making any decision.  If you are still working at age 70 ½ and decide to rollover your retirement account, you may need to take a mandatory RMD (required minimum distribution) before the funds can be rolled over.

Timeframe:

If a distribution is paid directly to you, you have 60 days from the date you receive the check to roll it over into another eligible retirement plan.  If you hold on to the check beyond the 60 days, this will create a taxable event for you (see Word of Caution above).  Be careful if you are considering an “indirect rollover.”

Ineligible Rollovers:

  • A Required Minimum Distribution (RMD)
  • A hardship distribution
  • An outstanding loan (if the new plan doesn’t accept)

The IRS will receive notification on your decision.

Before you decide what to do with your retirement account, consult with a tax professional.  You can also get more information about retirement plan rollovers, by visiting the IRS website at www.irs.gov and refer to IRS Topic 413.

Contact one of our investment professionals to obtain more information.

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