IRA Rollovers and Transfers

What’s the deal with IRA rollovers?

We’ve heard the phrase, but what does it mean?

A rollover is a process used to move a retirement account to another provider.  For example, a 401(k) or 403(b) can rollover to an IRA when the person meets the right criteria (listed below).   An IRA can even rollover into a 401(k) or 403(b) if a person wants to move it to their employer sponsored retirement plan.

Why would someone do a rollover?

A person might rollover a 401(k) or 403(b) into an IRA if they want to take advantage of certain features like:

– More investment options

– Lower fees

– Consolidation of multiple accounts

– Mobility

– More flexibility in general

It’s not uncommon for a person to collect retirement accounts over the years, so being able to rollover multiple accounts into a single account can help you manage your retirement savings better.

Am I eligible to rollover?

In order to rollover your 401(k) or 403(b) into an IRA, you should contact your plan administrator and find out what the plan rules say about rolling over your funds to another retirement account.  In many cases, unless you are 59 ½, the employer may require you to separate from service before you can rollover your funds.  This is just the nature of ‘employer sponsored plans.’ Yes, it IS your money – but you also have to follow the rules laid out by the employer plan rules.

If you have an IRA at a place and want to roll it to your 401(k) or 403(b), you can generally do this without any problems – as long as your employer sponsored plan allows it.  (This type of rollover is not common, but you certainly can do it.)

Moving an IRA from one company to another is actually called a ‘transfer.’  It’s called a transfer because you’re moving one account type to the same type of account – just with another firm.

Check out the IRS rollover chart showing accounts that are eligible to rollover:

How to do a rollover?

The rollover process is pretty simple:

1. Contact the company currently holding your retirement account.  Let them know you want to move your account to another retirement account and ask if you are allow to rollover funds into another company.

2. Ask the current company for any forms. The company holding your retirement account may require distribution paperwork to move your funds.  It’s best to request these forms early.

3. Contact the new company. Let them know you want to move a retirement account into their company.  They’ll let you know if any paperwork is required on their end.  Be sure to get a ‘letter of acceptance’ from the new company.  This is to be sent to the old company along with any forms that are to be completed.  The letter simply states that the new company will accept the funds from the old company.

4. Return each company’s paperwork. If you’ve completed each set paperwork and sent the new company’s letter of acceptance to the old company, the rollover should take place in 2-3 weeks.

Special notes on rollovers.

– A rollover is a tax-free event

–  If a 1099-R is sent to you it should show “taxable amount = 0”

– Sometimes a company will send the check to your home – just mail it to the new company.

A rollover is a great way to consolidate multiple retirement accounts and to take advantage of the flexibility that IRAs provide.  I hope this quick summary of rollovers helps you understand the basics of the process and how it works.

Have you ever rolled over a retirement account?  If so, what tips do you have?