Rollovers and Transfers

What is the Advantage of Moving Assets Between Eligible Retirement Plans?

A rollover, direct rollover, or transfer of your assets between eligible retirement plans allows you to move assets from one tax-deferred retirement plan into another. This will allow you to avoid possible income and penalty taxes and continue tax-deferred growth until withdrawn.

IRA-to-IRA Rollover and Transfer

There are two ways to move assets from one individual retirement account (IRA) into another IRA -- rollover and transfer. However, rollovers and transfers must occur between IRAs of the same type (i.e., traditional IRA to traditional IRA or Roth IRA to Roth IRA).

You may not roll over or transfer assets from a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA to a traditional IRA until two years have passed since the initial contribution date -- the date on which you first participated in an employer's SIMPLE IRA plan. If you participated in SIMPLE IRA plans of different employers, the initial contribution date and two-year period are determined separately for each SIMPLE IRA plan.

What Is a Rollover?

A rollover occurs when IRA assets are paid directly to you and you contribute them to an IRA (including back to the distributing IRA) within 60 calendar days of receipt. The 60-day period begins the day after you receive the distributon.

What Is a Transfer?

A transfer occurs when IRA assets move directly from one IRA to another IRA without your direct control or custody of those assets.

How Many Rollover or Transfer Transactions Am I Allowed?

You are limited to one IRA distribution rollover during a 12-month period. This 12-month rule applies to each separate IRA you own and is determined from the date you receive an IRA distribution. The 12-month limitation does not apply if the assets are transferred directly from one IRA into another IRA. The 12-month limitation also does not apply to conversions or to distributions from an Internal Revenue Code (IRC) Section 401(a), 403(b), or governmental 457(b) plan rolled over to a traditional or Roth IRA.

Employer Plans-to-IRA Rollovers

Distributions from certain employer plans are eligible for rollover to another qualified employer plan or to a traditional IRA or Roth IRA.

Which Employer Plans Can Make Eligible Rollover Distributions?

Employer plans that can make eligible rollover distributions include:

  • Plans qualified under IRC Section 401(a), including pension, profit sharing, 401(k), money purchase, and employee stock ownership plans (ESOPs)
  • Annuity plans under IRC Section 403(a)
  • Tax-sheltered annuities governed by IRC Section 403(b)
  • Deferred compensation plans under IRC Section 457(b)

Distributions you receive from these plans can be eligible for rollover to traditional IRAs and to similar employer plans. Any portion of an eligible distribution you do not roll over may be taxed as ordinary income, and a 10 percent additional penalty tax may apply if you are younger than age 59 1/2.

Prior to 2010, a recipient must have $100,000 or less of modified adjusted gross income during the year of the rollover and, if married, must file a joint federal income tax return.

What Assets Are Not Eligible for Rollover to a Traditional IRA?

Assets from employer plans that are not eligible for rollover to a IRA include:

  • Required minimum distributions generally beginning in the age 70 1/2 year or after death
  • Any part of a series of substantially equal periodic payments over a life expectancy period or for a period of ten years or more
  • Any hardship distribution
  • A loan that is treated as a distribution due to default or because other requirements have not been met
  • Costs reported as distributions associated with life insurance coverage
  • Distributions of excess contributions or excess deferrals
  • Corrective distributions of IRC Section 415 limit excesses and earnings

When am I eligible for a distribution from my employer's plan?

Ask your employer or check the summary plan description you received when you became a participant. Common distribution events for plan participants may include:

  • Separation from service -- including retirement,
  • Your disability,
  • Attaining normal retirement age -- no earlier than age 59 1/2, or
  • Termination of the plan

Your spouse may also receive an eligible rollover distribution at:

  • Your death -- as beneficiary he/she can roll over a death distribution to his/her traditional IRA
  • Divorce -- your spouse may receive the assets as an alternate payee in a qualified domestic relations order (QDRO)

What Is a Rollover?

If you receive an eligible rollover distribution from your employer's plan, you can contribute or roll over all or a portion of that distribution to a traditional or Roth IRA or another qualified employer plan within 60 calendar days of receipt. The 60-day period begins the day after you receive the distribution. An eligible rollover distribution paid directly to you is subject to a mandatory 20 percent federal income tax withholding at the time of the distribution. Any portion of the distribution (including the 20 percent withheld by the plan administrator) to a traditional IRA not rolled over within 60 calendar days may be subject to income taxes and the additional 10 percent penalty tax.

What Is a Direct Rollover?

A direct rollover is like an IRA-to-IRA transfer except an employer plan distribution is paid directly to a traditional IRA or another qualified employer plan without your direct control or custody of the assets. Directs rollovers incur no federal income tax or penalties. Therefore, direct rollover distributions are not subject to the mandatory 20 percent federal income tax withholding.

Frequently Asked Questions

Is There IRS Reporting?

IRA-to-IRA transfers are not reported. IRA distributions and all distributions from qualified employer plans are reported to you and the IRS on IRS Form 1099-R. Rollover contributions to IRAs are reported on IRS Form 5498 to you and the IRS. You are required to reflect any distributions you roll over on your federal income tax return.

Should I Keep Any Rollover or Direct Rollover Assets in a Separate Traditional IRA?

It is not necessary to establish a separate traditional IRA for rollovers. However, a separate traditional IRA may be valuable to preserve certain tax benefits available for some employer plan distributions. See your tax or legal professional for guidance.

Can I Roll Assets to More Than One Traditional IRA or Employer Plan?

Yes. You may use more than one traditional IRA to successfully accomplish a rollover or direct rollover. However, your plan administrator/employer may restrict your direct rollover to only one traditional IRA or other employer plan.

Can Stock or Other Property Be Rolled Over?

If you received a distribution of property from an IRA, the rules require that the same property be rolled over. If you received a distribution of property from an eligible retirement plan, the rules require that the same property, or the proceeds of the sale of such property, be rolled over.

Can I Roll Over Traditional or Rothe IRA Assets to an Employer Plan?

Traditional IRA assets are eligible for rollover to a qualified employer plan. However, nontaxable assets in a traditional IRA are not eligible for rollover. Nontaxable assets in a traditional IRA could include nondeductible IRA contributions and nontaxable distributions rolled over from other employer plans. Employer plans do not have to accept IRA rollovers. Roth IRA assets are not eligible for rollover to a qualified employer plan.

How Do I Open a Traditional IRA With a Rollover or Direct Rollover Contribution?

See any of our IRA representatives. We will explain the nature of these accounts in more detail and help you complete the forms necessary to establish your traditional IRA.

This Web page is effective for tax-year 2011 and thereafter. This page is intended to provide general information on federal tax laws governing rollover, direct rollover, and transfer transactions. It is not intended to provide legal advice or be a detailed explanation of the rules or how such rules may apply to your individual circumstances. For specific information, you are encouraged to consult your tax or legal professional. IRS Publication 590, Individual Retirement Arrangements, and the IRS's Web site, www.irs.gov, may also provide helpful information.

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