The road to retirement is long. Along the way you may need or want to move your retirement funds. Maybe you are leaving a job or maybe you are just looking for a new investment strategy. When the time comes to make a move, you will want to be sure that everything is done correctly. Rolling over retirement funds can be tricky and the consequences of a mistake can be serious. Here are 6 things about rollovers that every IRA owner needs to know.
1. How rollovers work
A 60-day rollover starts with a distribution from a retirement plan payable to you. The distribution can be from a company plan or an IRA. You will have receipt of the funds.
A direct rollover is paid from a company plan to another company plan or IRA. Though this transaction is called a “rollover,” it is very different from a 60-day rollover because you do not have receipt of the funds. A direct rollover avoids the mandatory 20% withholding that applies to rollover-eligible distributions from company plans.
When funds are moved directly between IRAs that transaction is not a rollover. It is instead a transfer. In a transfer, the funds are sent directly from one IRA custodian to another. Transfers are not subject to the many rules that restrict rollovers.