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Important Rollover Information For Your IRA’s & Qualified Plans

Important Rollover Information For Your IRA’s & Qualified Plans

There is a a lot of confusion regarding all of the rules regarding moving money in or out of retirement plans and IRA’s.  With the potential consequence of having funds that have never been taxed, to all of a sudden become taxable income, creates fear and trembling among many people.  Let’s dive into the do’s and don’ts regarding the rules so you don’t make any grave planning mistakes.

What Defines A Rollover. It is when you receive the funds directly from a custodian with a check made out in your name, and you have a 60 day period to deposit it back into another IRA or Roth IRA account. YOU CAN ONLY DO ONE ROLLOVER IN A 12 MONTH PERIOD!

A Rollover is Not a Transfer. A transfer is when you move money from one custodian to another and you never see the check. The check is made out to the new custodian NOT TO YOU!  YOU CAN DO AN UNLIMITED AMOUNT OF TRANSFERS IN ANY TIME PERIOD.

Receiving a check From Your 401k Provider made out to the new IRA custodian is not a rollover. Most of the time when you move funds out of a company retirement plan such as a 401k or 403b, the custodian will send the check directly to you made out in the name of the new custodian you are setting up an IRA with.

One Rollover For Each 365 Day Period. Ok here’s the major minefield that needs to be watched very closely.  You are only permitted to “rollover funds between an IRA or Roth IRA one time during a 365 day or 1 year period. This rule has been in effect since January of 2015, but it still has created a lot of confusion in the planning community.  So even if you have IRA’s and Roth IRA’s, if you do one rollover in your IRA, you can’t do a Rollover in your Roth IRA until the 365 day period has passed.

Definition of the New Rule. In the past the IRS allowed Rollovers for each IRA account that you had.  Now it doesn’t matter how many accounts, you can do only one!  Also the IRS does not let you correct the mistake if it happens.  IT is taxable income if more than one Rollover occurs during a 365 day period.  IT IS NOT A CALENDAR YEAR PERIOD.

Here’s Another Important Rule To Follow For Non Spouse Beneficiaries

Non-spouse beneficiaries can never do a rollover.  So if you have an inherited IRA the only way you can move funds from one custodian to another is by using direct transfers.

Spousal Beneficiaries Can Do One Rollover per Year. A spouse can rollover funds after the other spouse has passed away.

It Keeps Getting Worse…

SO If you under 591/2, not only will the excess rollover be taxable, but it an additional 10% penalty will be insured in addition to the tax, WITH NO EXCEPTIONS! Whew.. they just have no mercy here do they?  It’s like getting pulled over for driving too fast through a school zone when you didn’t see the sign..good luck with that.

One Other Problem…

Also if your contributing to an IRA and you foul up the Rollover rule they also call this an excess contribution and if you don’t remove the funds, they can hit you with a 6% excess contribution penalty.  You have until October 15 of the of the following year to remove the funds, otherwise you also have to file form 5329 to report your excess contribution.


So to take away the anxiety here, what you can do at all times is to do Transfers not Rollovers between your IRA’s.  This is not a taxable event, and you can do as many as you wish, so you can relax and not panic. When moving money from a company plan keep an eye out for who they are making the check out to. It needs to be the new custodian, not you.

As you can see it is important to tread lightly when it comes to moving funds around within your IRA’s and company retirement plans.  Make sure you know the rules and if you are going to use the Rollover rule, document everything very closely to make sure you’re in compliance.

IF you have any questions or want a second opinion before you pull the trigger on moving money, just send us a quick email and we can help you to apply the rules in your own situation.

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