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The Basics of Rolling Over Your Retirement Plan

We know merging retirement plans can be confusing, but the process doesn’t have to be. Rolling over your retirement plan assets to another retirement plan or an IRA can be stress-free when you understand the rules.

Rolling Over Your Retirement Plan in a Nutshell

A retirement plan rollover is the movement of eligible retirement plan assets to another eligible employer-sponsored retirement plan or IRA. Rolling over your retirement plan assets generally preserves their tax-preferred status.

When You Can Roll It Out

Rolling over your retirement plan starts with a distribution. Employer-sponsored retirement plans have “triggering events” – such as attainment of retirement age, termination of employment, disability, or death – that dictate when you can withdraw money from your account. Talk to your employer to determine if you are eligible for a distribution.

Next, you must ensure that the amount you are requesting is eligible to be rolled over. Most distributions from retirement plans are eligible to be rolled over to IRAs or other retirement plans, but some are not. For example, you cannot roll over the required distributions that you must take after reaching age 70 1/2.

Keep On Rollin’

There are options for where you can move your retirement savings and maintain their tax benefits. Following is a list of what types of retirement plan assets may be rolled over to Traditional or Roth IRAs, although most retirement plan assets may be rolled over to other retirement plans as well if the plan allows.

  • Traditional IRA
    • Qualified retirement plans such as a 401k retirement plan
    • Federal thrift savings plans
    • 403b retirement plans
    • Governmental 457b retirement plans
    • SIMPLE IRA Plan
  • Roth IRA
    • Qualified retirement plans such as a 401k retirement plan
    • Federal thrift savings plans
    • 403b retirement plans
    • Governmental 457b retirement plans
    • Designated Roth Plan Account

When rolling over to IRAs, remember that the money rolled over to Traditional and SIMPLE IRAs remains tax-deferred until distributed, and pretax money rolled over to Roth IRAs generally is taxable in the year of the rollover with the potential for tax-free distributions.

That’s How You Roll

Once you know that you are eligible for a rollover from your retirement plan and where you want the assets to go, you need to decide whether to directly or indirectly roll over the money.

By directly rolling over your money to another retirement plan or an IRA, you generally avoid paying current taxes (unless rolling over to a Roth IRA) and penalties because the check from the distributing plan is made payable to the receiving organization, rather than to you.

On the other hand, if you choose to have your retirement plan distribution made payable to you, the distributing plan must withhold 20 percent of the taxable portion of the distribution, and you must include that amount in your taxable income for the year. That amount also is subject to an early distribution penalty tax if you are under age 59 1/2 and do not have a penalty tax exception. To avoid the penalty and income taxes, you must follow through with an indirect rollover. You may make up the withheld amount out-of-pocket and deposit it with the rest of your distribution generally within 60 days.

Ask for Advice

As you’re making decisions about your financial future, it’s important to consult with a financial adviser. Many factors in your specific situation may make a difference in your retirement outlook and what options are best for you.

For more information about your rollover options, contact us through our Georgia Heritage Federal Credit Union website or step into one of our branches in the Savannah Metropolitan Area.

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