Roth IRA Rollover Laws
A Roth IRA rollover moves one Roth IRA to a new Roth IRA custodian. The rules and regulations of Roth IRAs and all rollovers are established through tax legislation and enforced by the Internal Revenue Service. Following rollover rules ensures preserving the tax-free savings structure of the Roth, preventing unwanted tax liabilities.
Other People Are Reading
-
Direct Rollovers
-
Direct rollovers move assets from one qualified plan custodian to another. In a direct rollover, the retirement assets are never in your possession. As a result, you can move assets in-kind, meaning stocks can moves as stocks. You don't need to liquidate the assets and rollover cash. You are allowed one rollover per 12-month period.
Indirect Rollovers
-
Indirect rollovers put the assets in your possession, if only for a short period of time. The assets in the relinquishing Roth account are liquidated with a check sent to you. You have 60 days to deposit the check in the new Roth IRA custodian. Holding it longer is viewed as a distribution. The IRS distrusts consumers getting large check in hand, mandating that Roth IRA custodians withhold 20 percent in federal tax on the distributed amount of the Roth IRA. The only time the withholding is not mandated is if the Roth already qualifies for normal distributions. If funds are withheld, you must have access to money to complete the rollover to make up the missing 20 percent. Otherwise an early distribution results with penalties.
-
Rollover Conversion
-
It is possible to have a traditional retirement plan such as a 401k, with all funds working on the tax-deferred basis, and do a simultaneous rollover and Roth conversion. The Roth IRA custodian must accept a one-step process that is allowed by the IRS. If the custodian doesn't accept the one-step method, roll the 401k into a traditional rollover IRA and then convert. The IRS does not deem this as two rollovers, thus you are not violating the 12-month rule.
Considerations
-
You don't need any reason to conduct a rollover, though some of the common reasons include investment autonomy, performance or service issues. Taking funds from an employer plan and moving them into a Roth IRA provides more investment options including thousands of stocks, bonds and mutual funds. An investor might move assets to a custodian with a better track record of return history. Yet others might rollover assets to get more personal service from the IRA custodian.
-
