What Is an IRA Rollover?

If you leave a job or retire, you might wantto transfer the money you’ve invested in one or more employer-sponsoredretirement plans to an individual retirement account . An IRA rollover isan effective way to keep your money accumulating tax deferred. Using an IRA rollover, you transfer yourretirement savings to an account at a private institution of your choice, andyou choose how you will invest the funds. To preserve the tax-deferred statusof retirement savings, the funds must be deposited in the IRA within 60 days ofwithdrawal from an employer’s plan. To avoid potential penalties and a 20%federal income tax withholding from your former employer, you should arrangefor a direct, institution-to-institution transfer. {{more}} You are able to roll over funds from anemployer-sponsored plan to a traditional IRA or a Roth IRA. Everyone iseligible for a Roth IRA rollover as there are no income limits . Keep in mind that ordinaryincome taxes are owed on all amounts rolled over to a Roth IRA. An IRA can be tailored to your particularneeds and goals and can incorporate a variety of investment vehicles, asopposed to the limited number of options available in many employer-sponsoredretirement plans. In addition, tax-deferred retirement savings from multipleemployers can later be consolidated. Over time, IRA rollovers may make it easier tomanage your retirement savings by consolidating your holdings in one place. Thiscan help cut down on paperwork and give you greater control over the managementof your retirement assets. Distributions from traditional IRAs are taxedas ordinary income and may be subject to an additional 10% federal income taxpenalty if taken prior to reaching age 59½. Just as with employer-sponsoredretirement plans, you must begin taking required minimum distributions from atraditional IRA each year after you turn age 70½. Qualified distributions from a Roth IRA arefree of federal income tax but may be subject tostate, local, and alternative minimum taxes. To qualify for a tax-free andpenalty-free withdrawal of earnings, a Roth IRA must meet the five-year holdingrequirement, and the distribution must take place after age 59½ or due todeath, disability, or a first-time home purchase .The mandatory distribution rules that apply to traditional IRAs do not apply tooriginal Roth IRA owners; however, Roth IRA beneficiaries must take mandatorydistributions. The information in this article is notintended to be tax or legal advice, and it may not be relied on for the purposeof avoiding any federal tax penalties. You are encouraged to seek tax or legaladvice from an independent professional advisor. This material was written andprepared byEmerald. © 2012 Emerald Connect, Inc.