IRA Rollovers

Whether you've changed jobs, retired, or your employer's plan has been terminated, you now must give careful consideration to issues concerning one of the most important financial decisions you'll ever have to make - what to do with your retirement plan distribution.

Several options may be available to you:

  • Leave the assets in the plan.
  • Distribute the cash and pay taxes immediately.
  • Roll your distribution directly into another retirement plan or IRA account.

Take a Cash Distribution

Distributions from a retirement plan payable to you are subject to federal and state (depending on your state statutes) income tax. In fact, your employer is required to withhold 20% from your distribution check as a prepayment of estimated taxes. Your distribution will also be subject to a 10% penalty if you are under age 59 12, unless you separate from service after turning age 55.

Indirect Rollover

Taking a cash distribution and then rolling it into your IRA or another Qualified Retirement Plan within 60 days is allowed; however, your employer is still required to withhold 20% for prepayment of federal income taxes. In order to avoid taxation and penalties, the entire distribution must be rolled over, including the 20% withheld for income taxes. If any amount , including the 20% withholding, is not rolled over, that amount will be subject to taxes and possible penalties.

Direct Rollover

A direct rollover moves 100% of your retirement plan directly into your IRA or to another Qualified Retirement Plan. You simply authorize your employer to make your check payable directly to the new custodian for the benefit of your IRA or Qualified Retirement Plan. There is no withholding, no taxes, and no penalties with this option. Your retirement savings will continue to grow tax-deferred until you take a distribution. You may also be able to do a direct rollover (conversion) to a Roth IRA.

This is an important time in your life, and the decisions you make today can have a significant impact on whether you are able to meet your future retirement goals. Please consult with your tax advisor prior to taking a distribution or performing a rollover from your employer-sponsored retirement plan.