Make a smooth retirement plan rollover
When you leave an employer, rolling over your retirement plan to a traditional individual retirement account (IRA) is often a good move. However, it's important to pay close attention to details of the rollover to avoid unnecessary taxes and a 10% penalty for early withdrawals. Steer clear of common blunders with these tips.
Don't miss the 60-day window
There are two ways to roll over your assets:
A distribution paid to you. If you choose this route, you have 60 days to roll over the balance (or a portion of it) to an IRA to maintain tax deferral. Your employer is required to withhold 20% of the amount distributed for taxes. If you want to defer tax on the entire amount, you will have to add funds from another source to equal the 20% that was withheld. You'll get the withheld 20% back when you file your income tax return.
If you fail to meet the 60-day deadline (starting when you receive the assets), the IRS will consider the entire amount a taxable distribution. You will owe tax at ordinary income tax rates, plus a 10% penalty tax if you were younger than age 55 when you left your employer (does not apply to 457 plans). Certain exceptions to the 10% penalty may apply. But there's an easier way!
Direct rollover (trustee-to-trustee transfer). You can have your employer transfer the distribution directly to the custodian of your IRA. No taxes are withheld, and the transaction is not taxable.
Don't ignore the same assets requirement
If you receive both property (stock, for instance) and cash in an eligible rollover distribution, you can roll over part or all of the property, part or all of the cash, or any combination of the two that you choose. But, if you receive property, you cannot keep the property and contribute cash to a traditional IRA in place of the property. You must either roll over the property or sell it and roll over the proceeds. Special rules may apply to distributions of employer stock.
Set up an account to receive assets first
One key to a quick and smooth rollover is to fill out all the required paperwork completely and accurately. You will have to fill out forms for both the account that currently holds your assets and the account that will receive them. By setting up the new account first, you'll have the appropriate account numbers and addresses to receive your assets.
We can help
Rollovers from a 401(k) plan can be a bit more complicated than say, rollovers from one IRA to another. We can help you navigate the process of rolling over your 401(k) to an IRA. Visit one of our branches or call us at 1-800-288-3425.