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Frequently Asked Rollover Questions
» What is a Rollover
» Why Do a Rollover
» How to Do a Rollover
» Government Plans
» ROTH IRA |
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 What is a Rollover?
Moving your eligible retirement funds left with a previous employer to your own individually managed Rollover IRA account is a Rollover.
You can do a rollover if you are leaving, changing or retiring from a job. In essence, you can take your retirement assets with you when leave a job. More importantly, your money continues to grow on a tax-deferred basis. |
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Why Do a Rollover?
A direct Rollover also allows your retirement money to continue to maintain its special tax treatment, a tax-deferral. Continue to build tax-deferred savings when you change jobs with a direct, trustee-to-trustee, rollover.
Some of the advantages of doing a rollover when you leave your employer are:
Distressed companies may spell trouble.
Large and small companies fall on hard times. When they do, your pension funds may be in jeopardy. There have been cases where employees have lost money because they can't get their pension funds due to a bankrupt or corrupt former employer. However, once your funds are rolled over, you won't have to be concerned about what happens to your former employer.
Your previous employer may get bought out or merge with another company.
The rules governing your retirement plan are largely decided by your employer. These rules may very well change when a company is merged or sold. And who knows, these changes may work to your disadvantage. By rolling your funds over now, you won't have to be concerned about what happens to your former employer.
You may qualify for a conversion to a Roth IRA, and if you do, it may be to your benefit.
Only the Roth IRA gives you tax-free earnings and tax-free withdrawals. After a five-year holding period and if you are 59-1/2 , you can take money out of a Roth-IRA without income tax or tax penalty if the Roth rules are followed. Use the Roth conversion calculator to assist you with your decision on whether to convert to a Roth IRA.
Handle mandatory distributions wisely.
If you have less than $5,000, the plan can decide to send you a lump sum distribution. To avoid paying taxes and penalties on any premature distributions do a direct rollover of those funds and keep your retirement funds working for you.
Avoid the spousal consent rule.
If your retirement funds are left in a retirement plan and you marry, the consent of your spouse will be needed if you decide to name anyone other than your spouse as the beneficiary. You, on the other hand, may want your parents or someone else to receive that money. Executing a rollover when you are still single lets you keep the flexibility to name any beneficiary you want at any time without having to go to your spouse for consent.
Control the access to your funds.
Some plans do not allow a participant to withdraw only a portion of their funds. Also loans from the plan may no longer be available to you after you leave your employer. Thus, you may have to pay taxes and penalties on all of your retirement money even though you may only need part of it. A rollover IRA gives you the flexibility to take out, if needed, a small part or all of your money. You may be subject to taxes and penalties but only on the amount you pull out. You may even take money out without penalty for qualified
distributions such as education expenses, first-time homebuyer expenses (up to $10,000), medical expenses, death, and disability.
Reduce the tax burden on your beneficiaries.
Upon your death, your spouse has the option to withdraw your pensions funds and roll them over to a tax-deferred IRA rollover account. Any other beneficiary would be required to pay taxes on any payout of your pension funds. Some beneficiaries may not need these funds right away and would rather delay receiving a payout in order to avoid the income taxes and to take advantage of the continued tax-free buildup inside the plan. Your beneficiary may be stuck if the plan forces them to take the account balance.
Too much company stock may be risky.
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Some reasons why you may not want to do a rollover?
» Company stocks are in your plan - Significant tax advantages may be lost with a rollover. Please consult with your tax advisor.
» Loans you took from the plan are outstanding - Loans cannot be rolled over, and a loan not paid off may be treated as a taxable distribution.
» Pending bankruptcy - In a bankruptcy you may have a greater degree of protection if your funds are in a qualified plan instead of in an IRA.
» Investments that cannot be duplicated outside of plan - If you have investments in your plan that you want to keep and there are no comparable or better choices available
outside.
» Your money is in a SIMPLE plan established less than 2 years ago, and there is an extra tax penalty for withdrawing money out during the first 2 years of a SIMPLE IRA . |
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