You don’t necessarily need a set amount of money to roll over to an IRA. For the most part, you can roll over any amount, as long as you are rolling the money from an eligible retirement plan to an eligible IRA. If you’ve opened a new IRA, you will need to roll over the minimum amount the financial institution requires to establish the account.
Eligible Rollover Accounts
For tax purposes, the Internal Revenue Service considers accounts eligible for rollover to an IRA to be: another traditional IRA; your employer-sponsored plan, such as a 401(k) or 403(b); a Section 457 retirement plan; or a Section 403 -- tax-sheltered annuity -- plan. Because of the different tax treatment, a Roth IRA or a Roth 401(k) can only be rolled into another Roth account. The other exception is the SIMPLE IRA, which can accept rollovers from another SIMPLE IRA, but does not allow for rollovers from any other type of retirement plan. You can, however, roll over your SIMPLE IRA into another eligible plan.
The amount of money you roll over from your eligible plan to an IRA is up to you. There are no set limits as to how much money you must roll over. Generally, rollovers are triggered by life situations such as quitting your job and wanting to take your 401(k) with you. In this case, you’d most likely roll over the entire amount of your old employer’s 401(k) into your IRA, as you have no need to keep the old 401(k) anymore. People also roll over existing retirements fund into IRAs because -- simply put -- they can get a better deal with the IRA plan holder. In this case, you’d also most likely roll over the entire amount and close your old retirement fund.
The rollover process is fairly simple. Whether you already have an existing IRA or you want to open a new one, you notify each plan holder of your intent to roll the funds over, designate the amount to be rolled over and fill out and submit any required paperwork. You will be handed your rollover amount, less any applicable taxes -- usually a 20-percent withholding -- to deposit into your IRA account. You must replace any withheld taxes prior to making your deposit -- and penalties if assessed -- and you must make your deposit within 60 days. If you fail to do so, the IRS will consider your rollover a distribution and tax and penalize -- 10 percent -- the missing amount accordingly, whether that is the full rollover dollars or just the taxes removed.
Aside from the 60-day time limit, there are other rollover mistakes you’ll want to avoid. You can only rollover money to the same IRA once a year, so don’t try to roll more money over prior to 365 days. If you’ve hit the age where you must take required minimum distributions from your traditional IRA -- 70 1/2 -- don’t try to roll your RMDs over into another IRA. You can do this when you’re younger, but at 70 1/2 you have to pocket and pay taxes on the money. You have to claim your rolled over money on your taxes, so make sure it doesn’t push you into a higher tax bracket.
Video of the Day
- Internal Revenue Service: Publication 590 -- Rollovers
- Internal Revenue Service: Rollovers -- Individual Retirement Arrangements (IRAs)
- Internal Revenue Service: Retirement Topic -- Rollovers of Retirement Plan Distributions
- Internal Revenue Service: Retirement Topic -- IRA Contribution Limits
- SmartMoney: Rolling Over Retirement Accounts
- SmartMoney: How to Rollover a 401(k)
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