If you’ve been thinking about rolling over your traditional IRA from one financial institution to another, there are a number of things you should think about when doing so. There are a number of mistakes that occur here, which can incur unnecessary taxes and penalties, that you will definitely want to avoid. Check out some of the most important things to know about IRA rollovers, below.
Know the 60 Day Rule
Once you receive funds from your IRA, you have 60 days, or about 2 months, to complete the rollover to another IRA. If you don’t complete this rollover in that period of time, then the amount in your IRA will be treated as income by the IRS and taxed accordingly based on your tax bracket for that year. Also, if you are not 59.5 years of age when this assumed income occurred from your IRA, you’ll also face a ten percent penalty upon the withdrawal, which could be a very large sum of money.
One Year Waiting Rule
You can basically only rollover one IRA to another IRA per year. If you do it more than once per year you will face a penalty. However, if you have two different IRAs, you can roll each over once per year without facing any added taxes or fees.
RMDs are Not Allowed to be Rolled Over
Tax free rollovers from your IRA can be done at any age, but if you are over seventy years of age, you can’t rollover your annual required minimum distribution, or RMD, as this would be considered excess contribution. One way to deal with this is to remove the current RMD amount from your IRA before implementing the rollover.
Rollovers Must be the Same Property
All rollovers from one IRA to another must be the same property. So if you withdraw cash from your IRA to rollover, you can’t purchase something with that cash and then make whatever you purchased part of your rollover IRA. It all must be cash. In other words, people who plan on using what they pulled out of the IRA to buy stock in a company and then roll it into a new IRA would be in violation of this rule and owe taxes and penalties to the IRS.