IRA Rollover Questions

You can roll your 401(k) into your IRA.

You can roll your 401(k) into your IRA.

One of the major benefits of having an individual retirement arrangement is the portability of your funds. You are not stuck with your existing IRA custodian. If you want to move your money to a different custodian or trustee, you are free to do so through a process called an IRA rollover. While a rollover transaction gives you some flexibility with your retirement dollars, you have to do it right to avoid unintended tax consequences.

IRA Rollover Definition

An IRA rollover is a contribution you make to your individual retirement arrangement using money you received from another retirement plan. This type of transaction might happen if you get a distribution from a retirement plan, such as your 401(k), once you leave employment. You can contribute that distribution to your IRA and avoid paying current income taxes on that money.

Effect on Contribution Limit

The amount of your IRA rollover contribution has no effect on the amount you may otherwise contribute to your IRA. As long as you have earned income and your modified adjusted gross income does not exceed the maximum limits established by the IRS, you can contribute the maximum amount to your IRA regardless of the size of any rollover contribution.

Time Limit

If you don't make your IRA rollover contribution within 60 days of receiving your distribution, the IRS will consider that money taxable income. If you don't meet the minimum requirements for receiving a qualified distribution -- usually by being at least 59 1/2 years old -- the IRS will also charge an additional 10 percent early distribution tax penalty. The IRS might waive the 60-day rule under certain circumstances, such as a disaster or other events beyond your control.


The plan administrator of your old retirement plan might offer a direct rollover of funds into your IRA. With a direct rollover you don't take possession of the distribution. The assets move from your old plan to your IRA directly, so you don't have to worry about the 60-day rule. You might also be able to do a trustee-to-trustee transfer. This type of transaction is similar to a direct rollover in that you don't take possession of your funds, but while there is a one-year waiting period between rollovers there is no such limitation on trustee-to-trustee transfers.


About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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