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IRA Rollover

While it may seem easier to just leave your funds in an IRA or old 401(k) plan that isn’t performing very well, there are actually some very good reasons to consider rolling them over into a Self-Guided IRA account.

First, one of the biggest benefits is that you will have many more investment options to choose from. In addition, you will likely save a considerable amount on fees.

What Exactly is an IRA Rollover?

IRA rollovers are technically defined as being a tax-free distribution of cash or other types of assets that flow from one type of retirement plan to another. In this case, the funds that are moved from one plan, then, are considered to be “rolled over” into the other plan.

When an individual leaves an employer and they were a participant in that employer’s qualified retirement plan such as a 401(k), they must make a decision as to what they will do with the funds that are inside of that retirement account.

In most cases, the individual will have three options. These options include the following:

  • Leaving the funds in the account with their former employer

  • Cashing out of the retirement plan and taking receipt of the funds

  • Rolling the funds over into a personal IRA (Individual Retirement Account)

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By rolling the funds into an IRA account, money may be moved tax-free and penalty-free into a plan where investments can continue to grow on a tax-deferred basis. In addition, in most situations, rolling the funds over into an IRA will offer the individual the most flexibility and control in terms of what types of investments they can make. This is especially the case if the person decides to move the funds into a Self-Guided IRA account.

Even after you’ve rolled money over to a new IRA account, you can still contribute additional new funds – up to the maximum annual contribution limit each year.

What Types of Funds Can Be Moved Into an IRA?

Funds that are eligible to be rolled over into a traditional IRA account include those that are held in the following types of accounts:

  • Qualified employer-sponsored retirement plans such as a 401(k)

  • Tax-sheltered annuity plan funds such as those in a 401(b)

  • Deferred compensation plan funds from a state or local government such as a 457 plan

  • Funds that are in another traditional IRA account

What Types of Investments Can You Choose?

When an investor moves funds into a regular IRA account, they will have the option of investing in traditional investment vehicles such as:

  • Stocks

  • Bonds

  • Mutual Funds

  • CDs

However, by choosing to open a Self-Guided IRA account, the choices of investment vehicles are nearly unlimited and, in addition to the above, can also include options such as:

  • Real Estate – Rentals and Passive Income

  •  Currency, Gold & Other Precious Metals

  • Private Placements –  Start Ups

  • Annuities – Secondary Market Annuities

  • Mortgage Notes – Commercial Notes – Private Notes

  • RV park lots – Boat Slips and Marinas

  • Structured Settlements  –  Lottery Payments

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IRS Guidelines for IRA Rollovers

According to the Internal Revenue Service (IRS), there are strict rules that must be followed as it pertains to IRA rollovers. Otherwise, the account owner may be subject to immediate taxation and / or an early withdrawal penalty of 10% (if under age 59 1/2) of the amount of IRA funds that were received.

As an example, if an individual takes receipt of his or her funds from an employer-sponsored 401(k) retirement plan – even if they have the intention of placing those funds into an IRA account – the funds must be placed into the IRA account within 60 days of the investor receiving those funds from the employer’s retirement plan. Otherwise, the amount that has not been rolled over will be treated as a taxable distribution, and taxation and penalties may occur.

IRA Rollover versus IRA Transfer

It is important to note that there is a difference between an IRA rollover and an IRA transfer. In either case, IRA accounts are required to be held at financial institutions. These institutions are known as the IRA custodian. By moving an IRA account directly from one custodian to another, it is considered to be an IRA account transfer.

With an IRA account transfer, there will be no tax consequences, and the account holder is not required to report any information to the IRA on his or her tax return. In addition, an IRA account holder is allowed to make an unlimited amount of IRA transfers each year.

Conversely, an investor may only transact one IRA rollover per year. In addition, even though the mechanics of an IRA rollover may seem to be quite similar to an IRA transfer, there are some very distinct differences.

First, as previously noted, IRA account rollovers require some highly stringent rules that need to be followed. Otherwise, the account holder could be taxed and / or penalized on their IRA funds.

When rolling over IRA funds, the account holder has a 60-day window of time with which to complete the transaction. If the IRA funds are not inside of a qualified retirement account within the 60-day time frame, then the funds are considered to be a taxable distribution to the account holder.

In addition, if the account holder is under the age of 59 1/2, he or she will also be penalized an additional 10%. This is considered an early withdrawal penalty and it is levied on the total amount of IRA funds that have not be replaced back into a qualified account.

On top of the 60-day time window, investors are also only allowed to make one IRA rollover within a 12-month period of time per IRA account. The number of rollovers that an investor participates in is closely followed by the IRS, as each rollover will require that an account holder is furnished with a form 1099-R from the financial institution that distributed the IRA funds. Likewise, the distribution is also reported to the IRS by the financial institution.

If the rollover funds were paid directly to the account holder, then 20% will withheld by the payer for tax purposes. The money may, however, be credited back to the account holder when filing their taxes.

With this in mind, it is important to ensure that your funds are moved as quickly and efficiently as possible from one custodian to another when transacting your IRA rollover. The custodian we work with has conducted thousands of Self Guided IRA transactions, and is well versed in moving funds within the allotted time frame so as not to incur IRS penalties. This efficiency will also get your funds invested and working for you much more quickly as well


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