Qualified Plan Rollover Rules

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Make sure you obey these crucial IRA rollover rules.
Make sure you obey these crucial IRA rollover rules. (Image: retirement worries image by Jale Evsen Duran from <a href='http://www.fotolia.com'>Fotolia.com</a>)

An qualified plan allows you to save money for your retirement without paying taxes on the buildup of your savings. Eventually, you will need to pay taxes on most qualified plans (Roth IRA plans do not pay taxes on withdrawals as long as the withdrawal is made after age 59 1/2). Because of the tax implications of all qualified plans, you will need to know what the rules are regarding qualified plan rollover rules.

Types

There are two ways to move money from a qualified plan to another qualified plan. A rollover is one of them. This is often confused with a transfer, however. A rollover means that you request your old account be liquidated, you take receipt of the funds, and then you open a new account on your own.

Significance

A rollover is one way for you to change brokerage accounts and remain in total control of your money throughout the entire process. Rollovers allow you to be the "trustee" in effect, instead of allowing an investment adviser or financial planner to perform the paperwork for you.

Time Frame

You must set up a new qualified plan within 60 days of receiving your account balance from the old account. If you do not set up a new account within 60 days, you will be assessed a 10 percent penalty plus ordinary income taxes on your savings if you are under age 59 1/2. If you are over 59 1/2, you will be liable for only ordinary income tax.

Withholding

Your old brokerage house will typically withhold 20 percent of your account balance-an amount of money that may be sufficient to pay for the taxes and any penalty you might incur if you do not set up your new qualified plan.

Considerations

Before performing a rollover, make sure that you want to take on the full responsibility for moving your retirement savings. Since you will subject yourself to possible penalties, you should be familiar with the process so that you can avoid making any costly mistakes.

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