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Kingston: Understanding the 60-day rollover rule | Business

Many retirement plan participants choose to transfer their 401 (k) or other employer-sponsored retirement plan to the IRA upon retirement. You may find that your current IRA can be improved by moving to a new IRA trustee. The distribution of a pension plan, which is not required, can usually be “switched” to another pension plan by passing the distribution within 60 days.


Direct crossings

Most transfers happen by direct transfer, where you seek distribution from one retirement plan to another or at the IRA, without taking over the distribution. You can open an IRA yourself or with your financial advisor. Then contact a 401 (k) or IRA guardian and request a direct transfer of your retirement plan funds to your new IRA guardian. No tax is denied if you have not taken possession of the property. Be sure to contact your tax trainee to check if this is the case with your unique situation.

Indirect crossings

By indirectly transferring possession you have the assets of a pension account. Then reinvest the property in another retirement account or re-deposit it in the same retirement account from which you withdrew. In general, indirect relocations should be avoided to eliminate potential taxes. If you choose an indirect transfer and do not want it to become taxable, keep a record that the transfer was completed in accordance with the 60-day transfer rule.

60-day transfer rule

Distributions of the pension plan paid to you are subject to a mandatory 20% federal tax deduction, even if you intend to repeal it later. Retention does not apply to a direct transfer or distribution sent to you in the form of a check paid to a retirement plan or IRA in your favor. If you have previously chosen to hold on to the IRA, you may want to choose to withhold for any distribution you plan to switch. Any amount of distribution, including withholding tax, that is not re-deposited within 60 days will be treated as a taxable withdrawal. If you are under the age of 59, an additional 10% penalty applies.

IRA rule one transmission per year

Generally, you can only make one switch from an IRA to another IRA, or the same IRA in a one-year period, no matter how many IRAs you own. This restriction applies by aggregating your IRAs, including SEPs, SIMPLE IRAs, traditional IRAs, and Roth IRAs, treating them as one. There are a few exceptions, which are not subject to limitation, including transfers from commissioners to other IRAs, conversions from traditional IRAs to Roth IRAs, and several others.

Recipient indirect switching is sometimes useful because you have 60 days to deposit a withdrawal on another 401 (k) IRA or deposit it again on the same IRA. This can give you the opportunity to temporarily use the property. This works primarily with IRAs, where you cannot choose to withhold taxes and when you are sure you will be able to re-deposit the property within 60 days. Proceed with caution, consulting with your financial and tax advisors before applying for the transition of your retirement plan or IRA to confirm that you are taking appropriate steps to meet the requirements of the recovery policy.

Kevin Kingston, CLU, is executive director and financial advisor at Savant Wealth Management; savantwealth.com