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Home » Estate Planning » How to Roll Over an IRA

How to Roll Over an IRA

July 3, 2016Estate Planning

IRAIf you receive or anticipate receiving distributions from your retirement plan before you actually retire, there can be significant tax consequences.  However, if you roll over payments from your IRA to another IRA within 60 days you can avoid those consequences.  In fact, your bank or other financial institution can transfer the payments directly into another Individual Retirement Account if you choose.

Understanding IRAs works

An Individual Retirement Account is basically a type of investment account that has various tax advantages. With IRAs, you are not required to pay taxes on the earnings from the account. Those earnings are reinvested so your account to can continue to grow. The, after you reach retirement age you can start making withdrawals from your IRA.  It is at that time that you will pay taxes on those distributions depending on the type of IRA you have.

Why would I need to roll over my IRA?

Rolling over a distribution from an IRA means that you do not incur taxes until the money is withdrawn from the new plan.  So, by rolling over your distributions you can continue to save for the future while your money continues to grow tax-deferred. If you  do not roll over the payments, then they will be taxable and, depending on whether you are making an early withdrawal, you may pay an additional penalty.

Methods for rolling over IRAs

The easiest and most direct strategy for rolling over your IRAs is to simply ask the financial institution holding your IRA to make the payments directly to another Individual Retirement Account. Typically, a check will be issued made payable to your new account and no taxes will be withheld from the transfer amount.  If, however, the distribution is made from the IRA directly to you before you can provide different instructions, then you have 60 days to deposit all of the distribution amount to an IRA.  The IRS can waive the 60-day rollover requirement if you missed the deadline because of circumstances beyond your control.

Are there limitations to making roll overs?

Generally speaking, there is a one-rollover-per-year rule which provides that you cannot make more than one rollover from the same IRA within a 1-year period. You also cannot make a rollover during this 1-year period from the IRA to which the distribution was rolled over.  This is true regardless of how many IRAs you may own.  However, this limitation does not apply to rollovers from traditional IRAs to Roth IRAs and a few other situations that you can discuss with your retirement planning attorney.

Once the one-rollover-per-year rule takes effect, you must include in gross income any previously untaxed amounts distributed from any IRAs if you made an IRA-to-IRA rollover  in the preceding 12 months.  You may also be subject to the 10% early withdrawal tax on the amount you include in gross income.

Which distributions can I roll over and will taxes be withheld?

With IRAs, you can roll over all or part of any distribution except the required minimum distribution or a distribution of excess contributions and related earnings. An IRA distribution that is paid directly to you is subject to 10% withholding unless you elect out of withholding or choose to have a different amount withheld. You can avoid withholding taxes if you choose to do a trustee-to-trustee transfer to another IRA.

How much can I roll over if taxes were withheld?

If you do not choose a direct rollover or you have not elected out of withholding in the case of a distribution from an IRA, your IRA trustee will withhold taxes from your distribution. If you later roll the distribution over within 60 days, you must use other funds to make up for the amount withheld. If you have questions, ask your retirement planning attorney.

Early withdrawals from traditional IRAs

The IRS charges a penalty for early withdrawals and distributions regardless of the type of IRAs. Traditional IRAs incur an additional 10% penalty if you receive a distribution prior to reaching the age of 59½. But, with a Roth IRA you are allowed to withdraw your initial contributions at any time without paying a penalty.  That is because you have already paid income taxes on that amount.  However, early withdrawals of earnings on the retirement funds are subject to the 10% penalty.

If you have questions regarding IRAs, or any other retirement planning needs, please contact the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.

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Scott Schomer, Estate Planning Attorney
Scott Schomer, Estate Planning Attorney
A graduate of Boston University School of Law, Scott P. Schomer is a frequent lecturer on estate planning and elder law issues, having discussed these important issues on local and national television. A seasoned courtroom advocate, Scott has obtained combined judgments and verdicts in excess of twenty-five million dollars for his clients. Scott has served as a member of the Los Angeles Superior Court Probate Volunteer Panel (PVP Attorney), Probate Settlement Panel and a Judge Pro Tempore. Scott's expertise has been recognized by his peers with such accolades as a life-time membership in the Multi-Million Dollar Advocates Forum, the Five Star Wealth Manager designation, and repeated nominations as California Super Lawyer.
Scott Schomer, Estate Planning Attorney
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