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Rollover IRA Questions

What is a Rollover IRA?

To permit tax-free transfers of retirement savings from one type of investment to another, as well as to increase the portability of qualified plan rights for employees moving from one job to another, Congress included a complicated web of rollover provisions in ERISA. These provisions cover transfers from one IRA to another, transfers from qualified pension, profit-sharing, stock bonus, and annuity plans to IRAs, and transfers from IRAs to qualified plans. An IRA may also, under limited circumstances, make a rollover distribution to a health savings account (HSA). In other words, if you receive a distribution from a qualified plan, you might decide to put some or all of the distribution amount into an IRA. The IRA that receives the qualified plan distribution is called a rollover IRA.

Can I rollover funds from a Traditional IRA to another Traditional IRA?

A distribution from an IRA to the individual for whose benefit the account or annuity is maintained is not taxable to the recipient if reinvested within 60 days in another IRA (other than an endowment contract) for the benefit of the same individual. The rule operates on an all-or-nothing basis. The entire amount received from the old IRA must be transferred to the transferee IRA. If anything is held back, the rollover rule does not apply, and everything received from the old IRA, including any amount transferred to another IRA, is treated as a taxable distribution. However, the distribution from the old IRA need not include the taxpayer’s entire interest. An IRA can be split, for example, by rolling a portion of it into a new IRA.

If property other than money is received from the old IRA, that property, not substitute property of equal value or the cash proceeds of the property’s sale, must be included in the transfer to the new IRA. According to the Tax Court, the rollover contribution must be of cash if the distribution is in cash.

The privilege of rolling over from IRA to IRA may be exercised only once in a 12-month period.

How many times can I do a rollover?

The privilege of rolling over from IRA to IRA may be exercised only once in a 12-month period.

Can I rollover funds from a qualified plan (401(k) Plan) to a Traditional IRA?

Very generally, a qualified plan or annuity participant can roll over any distribution other than a distribution that is part of a series of payments over the distributer’s life or life expectancy or over a fixed period of at least 10 years, a distribution required by the minimum distribution rules of Internal Revenue Code Section 401(a)(9) , or a hardship distribution. An employee’s surviving spouse may also roll over a similar distribution received on account of the employee’s death.

Can a Traditional IRA be rolled into a Qualified Plan (401(k) Plan)?

Yes. An IRA distribution may, within 60 days after the distribution, be rolled into an eligible retirement plan for the distributer’s benefit. The term “eligible retirement plan” includes qualified pension, profit-sharing, stock bonus, and annuity plans, tax-deferred annuities under Internal Revenue Code Section 403(b), and eligible deferred compensation plans maintained by state and local governments and their agencies and instrumentalities. The rollover contribution must include the “entire amount received” in the distribution, but it may not exceed the portion of the distribution that, in the absence of the rollover, would be included in the distributer’s gross income. Tax-free transfers of qualified plan distributions into other qualified plans, either directly or through intermediate IRAs, help make employee pension rights portable and thus fulfill an important objective of ERISA.

Can I rollover a Traditional IRA I inherited?

A taxpayer whose interest in an IRA is as beneficiary of the person who created the IRA is generally denied the privilege of rolling over tax free from the IRA to another type IRA or a qualified plan or tax-deferred annuity, except that a surviving spouse may roll over to another IRA but not a qualified plan. Because the tax allowances for IRAs (including an IRA’s tax exemption) are intended to encourage saving for the retirement of the contributor and surviving spouse, Congress decided it was inappropriate to allow the tax exemption to be prolonged by rollovers after the contributor has died and the account has passed into the hands of a person other than a surviving spouse.

If you have any questions about IRA rollovers, please contact one of our IRA experts at 800.472.0646 today!

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