IRA Rollover

Using a Rollover IRA for Your Retirement Plan Assets

When you retire or change jobs, one of the biggest decisions you will make is what to do with your retirement plan assets. One of your options is to roll the money over into a retirement account called a Rollover IRA.


What is a Rollover IRA?
More...

It's a special kind of individual retirement account (IRA) specifically for transfers of money from employer-sponsored retirement plans, such as a 401(k). Rollover IRAs sometimes are referred to as conduit IRAs.

Direct and Indirect Rollovers

If you transfer money directly from a previous employer's retirement plan to a Rollover IRA, you won't have to pay taxes on the money until you withdraw it later (ideally after you retire). You can choose from a broad range of investments suited to your investing style and retirement goal, and you usually can transfer the money into a new employer's plan later if the new plan allows it. You also may be able to convert a Rollover IRA to a Roth IRA if you meet the requirements. If you convert to a Roth IRA, you will owe taxes on any contributions and earnings not previously taxed.

If the money is sent to you rather than to a Rollover IRA, your former employer must withhold 20% of the distribution as a prepayment of federal taxes. You still can roll the money over to a Rollover IRA, if you do it within 60 days. This is called an indirect rollover. You will either have to make up the 20% that was withheld or pay taxes on that amount, and you may owe additional tax penalties.

Source