Rollover IRAs - The Basics

An Individual Retirement Account (IRA) is a savings plan that allows you to defer taxes on the income you earn until retirement age.  In certain instances, the money you contribute to an IRA is tax deductible and the earnings on the IRA account can grow tax-free until withdrawal.  While there are several types of IRAs, individuals may be able to transfer (or “rollover”)  existing retirement plan assets into an IRA account. 

A Rollover IRA is a great way for someone who is changing jobs or retiring to continue to receive the same tax advantages as they had with an employer sponsored plan like a 401(k).  All assets in the plan are simply “rolled over” to an IRA, where any earnings can remain tax-deferred.  In addition, an IRA generally offers more investment options and flexibility.  You can also rollover a number of individual IRAs into one Rollover IRA, if you’re interested in simplifying and consolidating accounts.

Amounts in a traditional IRA account can be rolled over to a Roth IRA if your adjusted gross income does not exceed $100,000.  While income taxes must be paid on the amount rolled over to a Roth IRA in the year of the rollover, you will benefit from the tax advantages of a Roth IRA.

When considering an IRA rollover, you should remember:

• There are no limits on the amount of rollover dollars.


• As with all IRAs, withdrawals before the age of 59 ½ will be subject to a 10% penalty.


• Distributions from qualified retirement plans must be rolled over within 60 days following receipt of the distribution, or you are subject to a 20% tax withholding.