TrustsEstates_dv716064_Feature_1920x945

08.01.16

Rollovers of retirement plan and IRA distributions

In most cases, distributions received from a retirement plan or IRA prior to retirement can be “rolled over” by depositing the payment in another retirement plan or IRA within 60 days. You can achieve the same result by having your financial institution or plan transfer the payment directly to another plan or IRA.

When you roll over a retirement plan distribution, you generally don’t pay tax on it until you withdraw it from the new plan. This allows your account to continue to grow tax-deferred without interruption.

Other than qualified Roth IRA distributions and any amounts already taxed, distributions not rolled over will be taxable currently. You may also be subject to additional tax unless you’re eligible for one of the exceptions to the 10% additional tax on early distributions.

Types of rollovers:

1. Direct rollover—If you are to receive a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.

2. Trustee-to-trustee transfer—If you are to receive a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a qualified retirement plan. No taxes will be withheld from your transfer amount.

3. 60-day rollover—If a distribution from an IRA or a retirement plan is paid directly to you, you may roll over all or a portion of it by depositing it in an IRA or a retirement plan within 60 days. If the distribution is from a retirement plan taxes will be withheld, so you will have to use other funds in order to roll over the full amount of the distribution.

IRA one-rollover-per-year rule:

Although there are exceptions for rollovers to or from qualified plans and for Roth IRA conversions, you generally cannot make more than one rollover between your IRAs within a 1-year period.

Beginning after January 1, 2015, you can now make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.
If you intend to make more than one rollover in any 12-month period be certain that one of the exceptions apply before doing so.

Types of distributions that cannot be rolled over:

IRAs:


1. Required minimum distributions
2. Distribution of excess contributions and related earnings

Retirement plans:

1. Required minimum distributions
2. Loans treated as a distribution
3. Hardship distributions
4. Distributions of excess contributions and related earnings
5. A distribution that is one of a series of substantially equal payments
6. Withdrawals electing out of automatic contribution arrangements
7. Distributions to pay for accident, health or life insurance
8. Dividends on employer securities
9. S corporation allocations treated as deemed distributions