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IRA rollovers can be a confusing subject for many individuals. This is because rollovers can come from qualified plans, tax sheltered annuities, eligible Section 457 government plans and the five types of IRAs.
Here, I will focus on rollovers that come from qualified plans such as 401(k), pension and profit sharing plans. The rollover will be to a traditional IRA or Roth IRA. Confining the explanation to a common rollover scenario keeps it simple by eliminating a discussion of the many other rollover situations.
You have worked hard, built up a big 401(k) and are ready to retire. Your plan is to roll your 401(k) into an IRA. What are the rules? What are your choices? What are the cautions?
The transfer of assets from your 401(k) to an IRA must be completed within 60 days. Failure to do so within this time frame would treat your intended rollover as a distribution. This would subject it to taxation and, if you are under age 59 1/2, a 10% premature distribution penalty. You can know more about IRA companies through .
If you are unfortunate enough to have your plan assets invested in an institution in bankruptcy, the IRS will cut you some slack. While your money is frozen, the 60 day clock isn’t running. While this may not come into play very often, it’s reassuring to know.
The cleanest way to do the rollover is to do a trustee-to-trustee transfer. If you receive the qualified plan proceeds personally, 20% withholding is required. IRA rollovers can help you earn money and enable you to lead a good life.