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The Rules of IRA Rollovers
Rolling over your IRA account into another account may seem like a good idea, especially if the other financial institution offers higher returns and better personal service. However, it’s not as simple as you think. In fact, there are certain rules you must play by in order to avoid being fined or taxed for IRA rollover mistakes.
The last thing you want is to have to pay more money for a simple error that you didn’t even know existed. That’s why we’re here. The rules of IRA rollovers are outlined below so you can make the most out of your retirement fund without paying unnecessary costs.
Rollover or Transfer?
Many people make the mistake of using a rollover from one financial institute to another when, in reality they should just be making a transfer. The difference lies in when you need the funds. If you are simply transferring your IRA funds from one bank to another and you do not need the funds, then a transfer is your best bet. There are fewer rules on transferring as opposed to a rolling over, which comes with several different rules as outlined below.
IRA Rollovers and the 60 Day Rule
Basically this rule states that after you have received your IRA funds, you only have 60 days to make the rollover to another financial institute. If you do not make the 60-day rule then the IRS will tax your IRA funds in the same way as other income. This can lead to a lot of unnecessary taxes on your hard-earned money. However, there is a way around this. You need to receive a waiver or an extension from the IRS.
The IRA Rollover Age Rule
The 60-day rule applies to everyone. However, there is another rule that applies to those under the age of 59.5 year old. If you are younger than this and are considering an IRA rollover you will be faced with a 10 percent penalty on the withdrawal. This is because your IRA funds are not supposed to be touched before this age.
The Anti-IRA Rollover Rule
Some IRA funds are simply not allowed to be rolled over tax free. This includes your Required Minimum Distribution (RMD) if you are older the age of 70.5. Your RMD will incur a penalty if you attempt to roll it over.
The Once a Year Rule
Another rule states that once you have made a rollover in your IRS funds, you cannot make another tax-free rollover from the same account within a year. If you have two IRA accounts, however, you can roll over the funds once per account.
All of these rules sound confusing right? Unfortunately it only gets more confusing if you wait.
It’s best to know what you’re getting into before considering an IRA roll over. No one wants to incur penalties, fees and taxes on their hard earned money. Do the research now so you will fully benefit later.