Investment Rollovers

While you can leave your retirement plan with your previous employer, you can no longer contribute to the plan. It’s also more difficult to manage multiple investment accounts, especially since people switch jobs several times during their careers. When we use the rollover rules to move your investment account, you keep the tax-deferred status of your funds, and you can continue to save for the future.

To qualify under the rollover rules, you have to meet certain criteria. For example, there is a 60-day deadline during which you must deposit the funds into a new qualified investment account. The IRS only allows one rollover in a 12-month period, although there’s no limit on the amount in your investment account.

You also can’t rollover a Roth retirement account into a traditional retirement account and vice versa. The rollover rules may require a two-year waiting period if you’re rolling your investment accounts into a SIMPLE IRA or converting a SIMPLE IRA to another type of tax-deferred account.

If you can use a direct rollover, that means the money never touches your bank account. Your current 401(k) or 403(b) plan manager sends the funds directly to your new retirement account. You can also use a trustee for this process.

An indirect rollover means you receive most of the funds, although you can expect 20% of taxes to be withheld. You have 60 days to deposit the funds into your new retirement account. If you want to avoid getting taxed, you must put the entire amount into an eligible tax-deferred account.

Under the IRS rules, you can rollover any distribution from one qualified retirement plan to another eligible plan. Eligible retirement plans include:

• 401(k) plans
• 403(b) plans
• 457 plans
• Pensions
• IRAs

We can help you facilitate your rollover to ensure you’re not penalized for taking an early distribution before you’re qualified to do so. With a direct rollover, you also don’t have to worry about having taxes withheld and coming up with the remaining 20% to fund your new investment account.

What’s the Difference between Direct and Indirect Rollovers?
With a direct 401(k) or 403(b) rollover, the money from your investment account never reaches you. Instead, the funds are transferred from one retirement account to another. With an indirect rollover, you receive a disbursement check, usually for 80% of the funds. Then it becomes your responsibility to deposit the money into a qualified plan within the 60-day timeframe.

What’s the Best Way to Minimize Taxes While Performing a Rollover?
The easiest way to keep your tax burden to a minimum is to take advantage of a direct rollover. If that’s not possible, we recommend coming up with the additional 20% to put into the new retirement account. Otherwise, any amount you don’t rollover into a new qualified account is considered a distribution and subject to income taxes. If you’re not qualified to receive distributions yet, you will also pay a 10% tax penalty.

What Are the Disadvantages of Rolling over a 401k to an IRA?
A 401(k) may charge lower fees than an individual retirement account, but you also usually have fewer investment options to choose from. One major advantage of 401(k)s is that your retirement account is protected by federal law from most types of creditor judgments, even bankruptcy. Finally, you may access your retirement funds earlier with a 401(k), at age 55 instead of age 59 ½.

It’s important to work with an experienced financial advisor to rollover your retirement plan to ensure you don’t pay penalties or taxes. Schedule your consultation with the Mosaic Wealth Consulting team today to review your retirement fund rollover options. Let’s plan for your future today!