Tips to Combining a Rollover and Traditional IRA

If you are carefully managing your retirement plans, there will be times when you will want to move funds from one IRA or 401k product to another. These moves are carefully monitored by the federal government, and strict rules apply to the transfers.

To ensure that you combine a rollover and traditional IRA legally and efficiently, it helps to know the rules and regulations governing these types of account moves. We have tips to help you combine a rollover and traditional IRA to make the most of your retirement plan.

Why Consider an IRA Rollover?

There are a number of reasons why you might want to combine a rollover and traditional IRA, including:

• Your current 401k is expiring, due to termination of employment or another reason
• One of your retirement plans is not performing as well as another
• You want to consolidate your retirement plans into fewer products for easier monitoring
• You are moving and want to move your retirement plan to a bank closer to your new home

No matter what your reason for combining a rollover and traditional IRA, it is important to adhere to all the rules regarding IRA rollovers to avoid substantial penalties that could significantly cut into your retirement account balance.

IRA Rollover Rules

IRA rollovers are completed when funds are taken out of one retirement plan and moved into another by the owner of the accounts. The funds are given directly to the account owner, who then takes the money directly to his second retirement plan.

This is in contrast to a trustee transfer, which takes place directly between the financial institutions. While the federal government does not closely monitor trustee transfers, IRA rollovers come under close scrutiny each year.

The 12-Month Rule

If you decide to combine a rollover and traditional IRA, you can only do so once every 12 months. This limit only applies when funds are rolled from one traditional retirement plan to another, not funds that come from 401k plans or go into Roth IRAs.

The 60-Day Rule

All IRA rollovers must be completed within 60 days to avoid a tax penalty. While the first institution will automatically withhold 20% from the distribution amount for tax purposes, that amount can be recouped on your tax statement if you can prove that the money went back into another qualified plan within that 60-day mark.

The RMD Rule

If you are 70 and a half or older, you must begin taking required minimum distributions from your IRA. If you rollover that distribution into another retirement plan, it is considered an over-contribution and penalized accordingly.

Same Property Rule

When you combine a rollover and traditional IRA, the types of property must match. This means that you cannot take cash from one retirement plan, use a portion of the IRA rollover to purchase stock, and then place the remaining cash and stock into another retirement plan. The cash used to purchase stock would be considered ordinary income, and it would be taxed and penalized accordingly.

Understanding the rules regarding IRA rollovers will ensure you combine a rollover and traditional IRA without problem or penalty. These rules are closely monitored by the government to ensure retirement plans are managed the way they were originally intended to be.
Tim Ord
Ord Oracle

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