If you roll over a retirement plan or individual retirement account (IRA) into another IRA, you have 60 days to replace the money before you incur an early withdrawal penalty of 10 percent. This rule allows employees who leave a company to transfer funds from a company-sponsored retirement plan to an IRA. In addition, it gives current IRA holders who are unhappy with their financial institution or investment choices an opportunity to move their accounts to another institution without being penalized.
Direct Rollover IRA
If you contribute money to an IRA that was withdrawn from another retirement account or IRA, you have performed a rollover. Any part of the withdrawal you don't put back into another account will get taxed as ordinary income. Also, the IRS will assess an extra 10 percent early-withdrawal penalty if you're younger than age 59 1/2. If the assets are made payable directly to the IRA custodian/trustee instead of to you, it is a direct rollover and you don't owe any taxes.
If the check is payable to you, you have 60 days from the time you receive the money to put the funds into your new IRA. Otherwise, you'll have to pay taxes on the money as if it were an early withdrawal. The IRS automatically waives the rule if the financial institution makes an error in depositing the funds after you have followed all the guidelines and directed the institution to roll over the funds into an eligible IRA. You still have to deposit the funds back into the IRA within one year to qualify for the waiver, even if you are not at fault.
60-Day Rule Waiver
If you fail to put the money into the rollover IRA within 60 days, you can still qualify for a waiver if "death, disability, hospitalization, incarceration, restrictions by a foreign country or postal error" curtailed the rollover, according to the IRS website. Before issuing a waiver, the IRS also considers whether or not you cashed the check or used the money, as well as the time passed before the deposit. Only the IRA owners, plan participants or surviving spouses can ask for a waiver.
Replacing the Funds
If the 60-day period has not passed, you need to contact the financial institution that holds the new IRA account or open a new IRA if necessary. Once the new IRA is open, you will receive paperwork to fill out and request funding. In some cases, this can be done online or via email. You can specify if you want to make the deposit by cash, check, automatic transfer, signing over the rollover check or any other options the company offers. Keep in mind that you can only roll over an IRA from or to a specific IRA, once every 12 months, without tax consequences.
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