Can You Roll an IRA Into Another IRA Without Penalty?
An indirect rollover may only be completed once every year and any distribution from an IRA that isn’t rolled over within 60 days is subject to ordinary income taxation.
Indirect rollovers require that you deposit the check into an IRA within 60 days or face taxes and penalties. Otherwise, this amount could become part of your taxable income.
Direct rollovers
Whenever transferring funds between retirement accounts, direct rollover is often the best solution. Under such an arrangement, distributions from your old employer’s plan travel directly from trustee to trustee in both accounts; this reduces taxes and penalties that would otherwise arise with indirect rollover.
An indirect rollover involves withdrawing your distribution from your current employer’s plan and depositing it directly into an IRA within 60 days from when your distribution was made – this new account must be of equal type as your previous one, and the entire distribution amount must be placed into this new IRA in order to avoid taxes and fees – it is the most frequently practiced form of rollover.
However, when contemplating an indirect rollover there are several key points to keep in mind. You may not be able to open your desired new account at your preferred brokerage or robo-advisor; additionally if you are an active employee still working at your company you must withdraw the funds in a timely fashion to avoid taxes and penalties.
Indirect rollovers can be more complicated than direct ones and could incur additional taxes and penalties if done incorrectly. If you choose an indirect rollover, make sure you can meet the 60-day deadline to deposit all pretax contributions and earnings into a new IRA before December 31. If not deposited before then, all distributions (including pretax contributions and earnings) could become subject to tax.
An indirect rollover requires adding the amount withheld from your distribution in order to meet its required timeframe – usually 20 percent of what is being rolled over.
When making decisions about direct or indirect rollover strategies, it’s always advisable to discuss them with your financial advisor. They can provide insight into each option as well as guidance for shifting assets between accounts – often saving hundreds or even thousands in taxes and fees in the process! Furthermore, your professional can assist with any concerns that might arise in this process as well as offer low-cost options if using an IRA with a robo-advisor IRAs are becoming increasingly popular tools in retirement planning strategies. A well-executed rollover strategy could become one of your greatest tools in retirement planning!
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