IRA Rollover Rules and Tax Implications

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December 11, 2008 Thursday 9:55 AM EST

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HEADLINE: IRA Rollover Rules and Tax Implications

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Dec. 11, 2008 (eRollover delivered by Newstex) -- eRollover.com IRA Rollver Rules and Tax Implications Understanding the short- and long-term tax implications of rollovers from employer-sponsored retirement plans is a critical component of retirement planning.

Thats because while employer-sponsored retirement plans and IRAs are designed to help you to build a retirement nest egg, not understanding rollover regulations can lead to unintended tax consequences that chip away at retirement savings. Information on this site can answer basic rollover questions such as¢ When are rollovers permitted from employer-sponsored plans¢ How to properly manage eligible rollover distributions¢ What are the rules covering rolling one IRA to another Also available is more detailed information including¢ IRA distribution rules¢ Dividends and capital gains tax rates¢ Required minimum distribution regulations Use this site to educate yourself about how you can effectively manage your rollover funds and contact your financial representative and tax accountant to talk about the IRA rollover approach that suits your financial situation. Frequently Asked Questions What is an IRA Rollover? An IRA Rollover is a tax-free transfer of funds from a tax-deferred plan, such as a 401(k) plan, to a traditional IRA. An IRA Rollover occurs when an employee changes jobs and is entitled to a distribution from the old employers 401(k) plan. By doing an IRA Rollover, the funds can be transferred tax-free to the employees own IRA. This means the funds can continue to grow on a tax-deferred basis inside the IRA. It also means that the funds are under the control of the employee with respect to investment decisions and future distributions. The term œIRA Rollover can also be applied to a transfer of funds from one IRA to another IRA. This too can be done on tax-free basis under a different set of rules that apply to IRA-to-IRA rollovers. Those rules are covered separately. IRA Rollovers from Employer-Sponsored Plans When is an IRA Rollover permitted for distributions from an employer-sponsored plan?An IRA Rollover is permitted for any œeligible rollover distribution from an employer-sponsored plan. This includes distributions from 401(k) plans when an employee changes jobs or retires, but also includes eligible rollover distributions from other employer-sponsored plans, such a qualified pension and profit-sharing plans, defined benefit plans, 403(a) annuity plans, 403(b) annuity contracts and governmental 457 plans. What is an œeligible rollover distribution from an employer-sponsored plan? Any distribution, whether all or less than all of the employees account, is an eligible rollover distribution, except for the following:¢ Any distribution which is part of a series of substantially equal periodic payments;¢ Any required minimum distributions;¢ Any distribution which is made upon hardship of the employee;¢ Certain returns of elective 401(k) contributions, corrective distributions, loans treated as distributions, and similar items. When are distributions permitted to an employee from a 401(k) plan or other employer-sponsored plan?Distributions from a 401(k) or other employer-sponsored plans are governed by IRS rules as well as the terms of the plan. In general, plan distributions require a triggering event, such as: ¢ Termination of employment¢ Attainment of the plans normal retirement age¢ Death Check with the plan administrator to be sure that the employee is entitled to a distribution under IRS rules and the terms of the plan and to determine what procedures are used to request such a distribution. How are IRA Rollovers from employer-sponsored plans accomplished? The employee usually has a choice of two methods to accomplish the IRA Rollover - the direct rollover or the indirect rollover. Direct Rollover In a direct rollover, which is also sometimes called a œplan-to-plan transfer, the eligible rollover distribution that is transferred directly by the employer-sponsored plan to the employees IRA. The funds are never actually transferred to the employee individually. Indirect Rollover Under the indirect rollover method, the employer-sponsored plan writes a distribution check to the employee, who then deposits the check in his or her own account. The employee then has 60 days to transfer all or a portion of the amount received in the distribution to an IRA. The distribution is not taxable to the employee if the transfer occurs within 60 days. Please visit our site for more Retirement, 401k, and Insurance information:www.erollover.com Newstex ID: ERLL-5183-30411956

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