Rollover IRA

A Rollover IRA is a Traditional IRA often used by individuals who have changed jobs or retired and have assets in their employer-sponsored retirement plan valued below $5,000.

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Rollover IRA FAQs

What is a Rollover IRA?

A Rollover is the process of moving your company’s retirement plan into an individual retirement account (IRA). Work retirement plans from former employers may include 401(k), profit-sharing plans, company stock options, etc. Rolling your company retirement plan into an IRA allows you to keep your retirement savings tax-deferred and also gives you broader investment opportunities.

Are there any Rollover IRA rules?
  1. Most company retirement plans will not allow you to move funds out of their plan while you are still employed. (Additionally, a new employer’s qualified retirement plan may or may not have contribution limits and rules about an IRA transfer into a new IRA account. Learn more about your new employer’s plan before making investment choices.)
  2. By choosing a direct rollover option from your previous employer’s plan you will avoid the mandatory 20% income tax withholding applied if the distribution was paid directly to you.
  3. You can only make one rollover per year from traditional IRA to traditional IRA. This does not apply to rollovers from traditional IRAs to Roth IRAs.

What are the benefits of a Rollover IRA?

The advantage of rolling over your company retirement plan into an IRA is that it is one of the best ways to save for retirement due to its wide array of investment options. This will help you develop a better long-term strategy for your retirement savings. Rolling your 401(k) into an IRA is free.

Is a Rollover IRA taxable?

If you’re not implementing a direct rollover option your Traditional IRA distribution will be applied the mandatory 20% federal tax withholding. Avoid this mandatory tax withholding by choosing a direct rollover option where the distribution check is sent and payable directly to your new financial institution.

Can a Rollover IRA be converted to Roth IRA?

Due to some recent tax changes, you can rollover your qualified company plan into a Roth IRA. This is quite a beneficial option for IRA contributions as Roth IRAs grow tax-free and you do not have required distributions from a Roth come retirement.

How to show Rollover IRA on tax return?

A rollover from one IRA to another is a non-taxable transaction. Look for the 1099-R form in the mail from your plan administrator at the end of the year, and consult with your tax advisor for further details on how to denote the transaction.

Why set up a Rollover IRA?

If you already have an IRA account open with a financial institution, great! You can roll your 401(k) right into that. If not, you should decide whether or not you would like a traditional IRA or a Roth IRA and where you would like for those funds to be housed. Your Mainstar Trust financial advisor can help you determine the right type of IRA for you, as well as select mutual funds.

What is an indirect rollover?

As opposed to a direct transfer, an indirect rollover is a process where the company that manages your account sends you a check for the amount you request (minus taxes) and then you have 60 days to deposit it (plus taxes) into a new account to avoid paying income tax and penalties.

Are Rollover IRAs and Traditional IRAs the same?

The difference between a rollover IRA and a Traditional IRA is that a rollover IRA is a type of account that receives assets from an outside custodian, ie. company retirement plans, 401(k)s, and other IRAs.

Your assets can live in the Rollover IRA until you find future employment and can roll it once again into a 401(k) account. If you make any contributions to the Rollover IRA, it becomes a co-mingled account, making it a traditional IRA thus losing its ability to roll back into a 401(k) in the future.

Can you withdraw from a Rollover IRA?

Generally, an early withdrawal from an Individual Retirement Account (IRA) before the age of 59 1/2 should be claimed as gross income, as well as having an additional 10% early withdrawal penalty from the IRS. There are exceptions to the 10% penalty such as using the funds to pay for medical insurance premiums post job loss and making a down payment for your first home purchase among others. Always consult with your investment adviser to make sure you’re making the right investments/financial decisions concerning your retirement assets, rollover distributions, and tax implications.

Learn more about retirement fund options and the Roth 401(k) rollover process with Mainstar Trust’s advisory services. Our staff of experts can explain investment options and ensure you’re making the most of tax advantages with your deductible contributions. Contact us today to open your brokerage account and learn more about Roth conversions!