To rollover an IRA, typically, the administrator or custodian of your previous 401(k) plan or IRA account will send a check made payable to your new account provider – this money is considered an income distribution and therefore subject to taxes.
To avoid tax repercussions, all checks must be deposited within 60 days or they could incur severe tax implications. Unfortunately, this rule is rarely waived.
Direct rollovers
If you want to transfer assets from an employer-sponsored plan into an IRA, there are various strategies you can utilize. One option is an indirect rollover wherein your plan administrator issues you a check for the distribution amount; within 60 days after depositing into the new IRA (to avoid taxes and penalties). However, this 60-day deadline doesn’t apply if rolling over required minimum distribution or hardship withdrawal payments.
Direct rollovers enable you to transfer funds directly from one IRA account into another without going through indirect rollovers, typically taking just weeks to complete. Direct transfers don’t trigger tax withholding, as they don’t constitute distribution of assets; also, neither indirect or direct rollovers count towards your annual IRA contribution limit.
Dependent upon your circumstances, direct rollover may prove more advantageous. For instance, having multiple accounts at different financial institutions makes keeping track of performance and balances difficult; by consolidating them all into one, direct rolling can streamline recordkeeping while potentially lowering fees incurred from managing multiple accounts simultaneously.
To initiate a direct rollover, it is necessary to contact your former employer’s plan administrator and request they send your distribution check directly to the custodian of your new IRA account. This can be accomplished either online, over the phone, or face to face. They should provide you with an account number for your new IRA as well as provide information on who it will be sent too – then open up that new IRA with them and complete any required forms or filling out forms or providing necessary forms and paperwork.
There are no limits on how many direct IRA rollovers you can do in a year; however, indirect rollovers between IRAs or employer-sponsored plans are limited to one per 12-month period and only qualified plan distributions can be moved indirectly into traditional IRAs and not Roth IRAs.
An expert should advise on the most efficient method to move retirement assets between accounts. A direct rollover is typically recommended; it’s straightforward, doesn’t trigger tax withholding and won’t count against your IRA contribution limit.
Bottom line, moving retirement assets between accounts has many advantages if you have changed jobs multiple times throughout your career. By moving, moving will increase investment options and reduce fees significantly.
Although there is no set rule when it comes to moving retirement money from one employer to another, you should always consult a financial professional prior to making any decisions. Each scenario carries with it different tax consequences that should be carefully evaluated when deciding if it makes sense for you; factors to take into account include tax treatments of current and previous retirement accounts as well as loan provisions and creditor protections.
