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401k Rollover Plan

401k Rollover Plan
Get here all the resources, knowledge and information that you always wanted to know about 401K plan, 401k rollover, 401k retirement plan, 401k withdrawal, etc..

 

Using a Rollover IRA for Your Retirement Plan Assets
When you retire or change jobs, one of the biggest decisions you will make is what to do with your retirement plan assets. One of your options is to roll the money over into a retirement account called a Rollover IRA.


What is a Rollover IRA?
Direct and Indirect Rollovers
Contributions
Earnings and Withdrawals

What is a Rollover IRA?

It's a special kind of individual retirement account (IRA) specifically for transfers of money from employer-sponsored retirement plans, such as a 401(k). Rollover IRAs sometimes are referred to as conduit IRAs.

Direct and Indirect Rollovers

If you transfer money directly from a previous employer's retirement plan to a Rollover IRA, you won't have to pay taxes on the money until you withdraw it later (ideally after you retire). You can choose from a broad range of investments suited to your investing style and retirement goal, and you usually can transfer the money into a new employer's plan later if the new plan allows it. You also may be able to convert a Rollover IRA to a Roth IRA if you meet the requirements. If you convert to a Roth IRA, you will owe taxes on any contributions and earnings not previously taxed.

If the money is sent to you rather than to a Rollover IRA, your former employer must withhold 20% of the distribution as a prepayment of federal taxes. You still can roll the money over to a Rollover IRA, if you do it within 60 days. This is called an indirect rollover. You will either have to make up the 20% that was withheld or pay taxes on that amount, and you may owe additional tax penalties.

 

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Contributions: It used to be that Rollover IRA money and IRA contributions could not be "commingled," or combined, if you planned to transfer your rollover money to a new employer's plan at a later date. But the 2001 Tax Act made the rules regarding rollovers more flexible. Now IRA contributions generally can be rolled over to an employer-sponsored plan that allows it. If you are not sure your new plan allows transfers of IRA contributions or you are not sure what you will do with your rollover funds in the future, you may want to keep your rollover money and your IRA contributions in separate accounts. If you do not plan to transfer your rollover funds to a new employer plan in the future and you would like to add contributions to your Rollover IRA, check with the investment company who is managing your account for their policy. You may have to transfer the money from your Rollover IRA to a new contributory IRA.

Earnings and Withdrawals: The rules for earnings and withdrawals for a Rollover IRA are the same as for a traditional IRA.

  • Earnings grow tax deferred and are taxed at your ordinary income tax rate upon withdrawal.

  • You must begin taking minimum distributions from a Rollover IRA beginning at age 70½.

  • Early withdrawal penalties may apply for withdrawals prior to age 59½.

  • Penalty-free distributions for special purposes may be permitted prior to retirement.

This information is for educational purposes only and is not intended as investment or tax advice.

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