Completing IRA Rollovers

Since you have retired, are you thinking about shifting funds from a qualified retirement program (profit sharing, 401(k), 403(b), etc.) to your personal IRA? These kinds of IRA rollovers can possibly present you with more investment possibilities and greater opportunities for your hard-earned dollars.

You can contact your ex-employer(s) and have your retirement money transferred right to your traditional IRA and allow the two organizations to handle the intricacies of IRA rollovers. Alternatively, you can opt to pay income tax on the transferred balance and convert some or all of the retirement funds to a Roth IRA rollover. By paying this income tax today, the money which you and your beneficiaries get in the future will be tax-free. Unlike a regular IRA rollover, Roth IRA rollovers are exempt from minimum distribution regulations (for you and your wife or husband). This could allow you to supply your family with a substantial source of tax-free money for decades. But before executing a Roth IRA rollover, you should note that such converted funds are subject to Roth IRA holding period requirements prior to withdrawal.

Once you have decided on an IRA rollover to a tradition or Roth account, a couple caveats should be mentioned.

First, have your employer transfer the funds directly to your IRA rollover account and never take possession of the funds.  Taking possession of the funds results in income tax withholding to you.  You will get these funds back, but here’s and example of what occurs:

Assuming you have $50,000 in a 401k plan.  You  ask for a check.  the check you receive is for $40,000 because the ex-employer is required to withhold 20%.  To complete your rollover to a traditional IRA and have it be tax free, you must complete that $50,000 transfer within 60 days (the 60 day rule).  Since you only have $40,000 from your ex-employer, you must take $10,000 from your regular savings to make a complete $50,000 rollover.  Approximately a year from now, when you file your next tax return, you will be able to claim the 20% withheld as a credit. Wouldn’t this have been much smarter to just have your ex-employer send the $50,000 check directly to your IRA rollover account?

Next, you need to comply with your former employer’s IRA rollover guidelines to the letter, or you will have needless delays in transferring your funds. Many retirement plan administrators have specific forms (which may even need to be notarized) and time requirements. As an example, an administrator may only send funds at the end of each calendar quarter in response to request received not later than 15 days into the current calendar quarter.  Simply find out the rules and no matter how silly or anal, just follow them if you want your retirement cash in your control.

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