IRA Rollover Instructions

Rollovers must be reported when you file your taxes.

An IRA rollover allows you to move money from one retirement account into an IRA with similar tax benefits. For example, you can roll over money from a traditional 401k, traditional 403b, SIMPLE IRA, SEP IRA or traditional IRA into another traditional IRA because all of these accounts are tax-deferred accounts. You can also roll money from a Roth 401k, Roth 403b or Roth IRA into another Roth IRA. People may choose to roll over money to consolidate their retirement assets, change investment strategies or seek lower fees.

Instructions

1. Contact the financial institution that holds your current retirement account that you want to roll over to your new account to inform them of your decision. Each financial institution has a different form to fill out.

2. Take possession of 80 percent of the sum in the original retirement account, which you will roll over to your new account. When you perform a rollover, the financial institution that you are withdrawing the money from must withhold 20 percent of the money for the estimated taxes you will owe if you do not complete the rollover. For example, if you want to roll over $20,000, you will only receive $16,000 because $4,000 (20 percent) will be withheld.

3. Deposit 100 percent of the rollover amount in the new IRA within 60 days of requesting the roll over. For example, if you withdrew $20,000 to roll over, even though you only received $16,000, you would have to redeposit $20,000 to avoid paying taxes and penalties on the rollover.

4. Report the rollover on your form 1040 tax form by writing the amount of the rollover on line 15a if rolling the money over from another IRA or line 16a if rolling the money over from a 401k or 403b plan. Then write "rollover" next to the amount of the rollover. If you use form 1040A, use line 11a for rollovers from another IRA and line 12a if rolling over the money from a 401k or 403b.

Tips & Warnings

• If you want to avoid having 20 percent withheld, you can do a transfer where the money is moved directed from one account to the other without you having to touch it.

References

• IRS: IRA Rules
• Money Zine: IRA Withdrawals
• Bankrate: Reporting 401(k) and IRA Rollovers
• Motley Fool: IRA Rollovers vs. Transfers, Part I