Have You Completed Your IRA Rollover Correctly?

Published on March 7, 2017

Rolling funds over from one retirement plan to another is not always as easy as it sounds. Direct and indirect rollovers have specific applications and IRS rules, which must be followed carefully to avoid ending up in tax court. Therefore, it is important to know all the ins and outs of the rollover process and to discuss your best strategy with a trusted financial advisor.

One study conducted by the Employee Benefit Research Institute found that 56 percent of workers preferred taking their retirement assets as a lump sum, many of which were destined for IRA rollovers.

Another statistic from Cerulli Associates claims that retiring baby boomers could push the IRA rollover surge to $12 trillion by 2020. This represents a lot of retirement funds that must be handled carefully when moving from one retirement plan to another.

Here are some basic rules about rollovers:

• There are two types of rollovers—direct and indirect. Here is the difference:
• Direct Rollovers – This is the most common type of rollover. Usually done from one custodian to the other, the client is responsible for initiating this type of money movement to the new account. The timeline for a direct rollover can usually range between a week and up to a month depending on the transaction time of the initiating custodian. Be sure to consult your current custodian for more information.
• Indirect rollovers — also called “60-day rollovers,” funds do not go directly to the new IRA. A check is made payable to the investor who has 60 days to roll over the money into another IRA (or back to the same one if chosen). You will be penalized if you go over the 60-day period.
• You may only do one rollover per year to avoid taking a taxable distribution. If you make a second rollover within one year of the initial 60-day rollover, you may be hit with a tax penalty of up to 10 percent depending on your age (under 59 ½ years old). You could possibly lose your IRA investment status in the process, so be sure to consult with your advisor or a tax professional before attempting to initiate a second rollover within a 12-month period.
• You can also do a “Trustee-to-Trustee Direct Transfer” – a more hybrid approach. In this process, you will receive a distribution check that is already made payable to the receiving IRA custodian.

Of course, everyone’s financial situation is different, so any rollover strategy should be researched first.

At Next Generation Trust Services, we are here to help with the rollover process. Whether you plan to establish a new self-directed retirement account with funds to be rolled over or with other funding for your new investments, our professional team can answer any questions and provide assistance. For instance, you can learn more about rollovers and contributions for your self-directed retirement plan with this informational video. If you are “ready to roll” (pun intended), you may open an account using our starter kits which guide you through all the steps and necessary documentation we require to administer your self-directed retirement plan. Please do not hesitate to contact us with your questions at Info@NextGenerationTrust.com or 888.857.8058.