J is for Jeopardizing an IRA Transfer

J is for Jeopardizing an IRA Transfer

J is for Jeopardizing an IRA Transfer
About to Rollover an IRA? You may be leaving one provider for another or it may be that you’re leaving a job. Whatever the reason, before you begin initiating an IRA rollover beware of some common mistakes that may jeopardize your account.
Time Limit
You have a 60 day limit in which you must complete the rollover to another IRA. If you miss this deadline, you could pay federal and state income taxes. Plus a 10% federal tax penalty on the taxable amount; if you’re under age 59 ½.
Same Property
An indirect rollover from an IRA is only tax-free if the “same property” is rolled over within the 60-day period. This rule prohibits your ability to take a distribution from your IRA without causing a taxable event. In order to avoid being taxed keep it simple. And transfer or rollover the same assets directly into a new IRA.
Indirect Rollovers
When rolling assets indirectly from an employer-sponsored plan. Your 401k will distributed the proceeds directly to you. By law the plan administrator must withhold 20% of the taxable amount. Regardless of your intent to rollover the assets with 60 days. However, if you replace the 20% withheld with outside money and then roll 100% of the assets into another IRA or plan your rollover will be tax free. The best course of action would be to elect a transfer to your new employer’s retirement plan or into a rollover IRA plan as a trustee to trustee transfer which would avoid tax withholding requirement.
Waiting Rule
Once you have completed an IRA rollover (full or partial) you may not make another rollover from this IRA for a period of one year. There is an exception to this rule if distribution is from an employer sponsored qualified plan.
Simple Oversights
Check your Mail – should your plan send you a check, you only have 60 days to roll it over to another tax-deferred account. Paperwork – make sure all the proper paperwork is in order and properly signed.
In order to avoid jeopardizing your IRA transfer and incur possible loss of tax-deferred growth; do your homework and consult with your financial professional or tax advisor reading your specific situation.
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