How to Roll over Assets Into a Traditional IRA
Determine if your employer's plan is one that allows a "roll over" to a Traditional IRA., Choose a financial institution offering a Traditional IRA plan to receive your rolled-over retirement savings., To choose the institution and plan right for...
Step-by-Step Guide
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Step 1: Determine if your employer's plan is one that allows a "roll over" to a Traditional IRA.
If you are unsure what type of plan you currently have, check your most recent statement or contact your plan administrator.
You can roll over, to a Traditional IRA, funds from another Traditional IRA or any of the following plans:
An employer's "qualified" retirement plan for its employees.
Qualified plans include profit-sharing plans, 401(k)'s, money purchases, and defined-benefit plans.
These are some of the most common employer-sponsored plans.
A deferred-compensation plan (known as a "Section 457" plan), available to some state and local government workers, as well as employees of any non-governmental entities that are federal-tax-exempt.
Contributions to and earnings from a Section 457 plan are tax-deferred.
A tax-sheltered annuity (“section 403").
A section 403 plan, known also as a 403(b) tax-sheltered annuity (“TSA”), is a retirement plan offered employees of public schools and certain other tax-exempt organizations.
A Simplified Employee Pension (“SEP”).
A SEP is similar to a traditional IRA and is set up by the employer.
Any size business, even self-employed individuals, may establish a SEP.
Start-up and operating costs associated with conventional retirement plans do not apply to SEP plans, and they allow for a relatively large annual contribution of up to 25 percent of an employee’s earnings.
A Savings Incentive Match Plan for Employees (“Simple”).
Simple IRA plans are available to the self-employed and to business owners with 100 employees or less.
The costs of a Simple IRA are generally lower than those associated with 401(k)'s and other popular retirement plans.
The owner of a Simple IRA must wait two years from the date the account was opened before rolling over any funds to another plan. -
Step 2: Choose a financial institution offering a Traditional IRA plan to receive your rolled-over retirement savings.
You can set up an IRA with a bank or credit union, life insurance company, mutual fund, or stockbroker.
Each will have different investment choices available and different rules, procedures, and fees for managing your investments, as well as different minimum amounts to open an account. , This should include investment opportunities available under the plan, plan fees, equity trade fees, and tools available to assist you in maintaining your account.
Compare the plans you are considering.
While some may have lower fees, others may offer much more information and personal assistance to help you make the most of your IRA.
Compare the plans and decide which is right for your particular needs and financial circumstances.
Gather current and previous customer opinions on each plan.
Talk to friends, family, and co-workers, check with the Better Business Bureau for complaints lodged against the financial institution you are considering as administrator of your IRA, and read online customer reviews. , Most large banks, insurance companies, and brokerage and investment firms (such as TD Ameritrade, Wells-Fargo, and Fidelity, to name a few) can help you open an IRA by telephone or on their websites. , Most large institutions will be happy to assist you in making a smooth transfer of funds, although there could be a slight delay involved in the interface between your old plan and the new one. , You may wish to consult with an accountant, tax attorney, or a certified financial planner for help in determining what type of transfer is most appropriate in your situation.
You may choose from two types of rollovers:
Direct.
A direct roll over occurs when the money transfers directly from one plan to the other ("trustee-to-trustee") without passing through the account holder's hands.
Indirect.
When using an indirect roll over, the funds are paid to the account holder, who then has sixty days to deposit them into the new account.
Amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment and will be taxed as regular income in the current year.
This may also result in an additional ten percent penalty for early withdrawal.
For these reasons, indirect roll overs are not recommended except in specific financial circumstances.
Again, consult a reputable tax advisor. , Be sure to inform the administrator that you would like to roll over funds, and provide information regarding which type of roll over you have chosen.
The administrator will then provide you with the appropriate forms to initiate the transfer. , The forms will be fairly self-explanatory, but if you have any questions, contact the administrator.
Many plans provide one-on-one assistance from financial advisors at little or no charge.
If you prefer, opening an IRA can often be handled entirely online. -
Step 3: To choose the institution and plan right for you: Obtain complete information on each plan you are considering.
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Step 4: Once you pick an administrator
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Step 5: begin the account set-up process.
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Step 6: Confirm with the administrator of your new IRA that they can receive rollover money.
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Step 7: Determine what type of roll over is best for you.
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Step 8: Advise the new administrator of your plans.
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Step 9: Complete the roll over forms and return them to your plan administrator or fill them out online.
Detailed Guide
If you are unsure what type of plan you currently have, check your most recent statement or contact your plan administrator.
You can roll over, to a Traditional IRA, funds from another Traditional IRA or any of the following plans:
An employer's "qualified" retirement plan for its employees.
Qualified plans include profit-sharing plans, 401(k)'s, money purchases, and defined-benefit plans.
These are some of the most common employer-sponsored plans.
A deferred-compensation plan (known as a "Section 457" plan), available to some state and local government workers, as well as employees of any non-governmental entities that are federal-tax-exempt.
Contributions to and earnings from a Section 457 plan are tax-deferred.
A tax-sheltered annuity (“section 403").
A section 403 plan, known also as a 403(b) tax-sheltered annuity (“TSA”), is a retirement plan offered employees of public schools and certain other tax-exempt organizations.
A Simplified Employee Pension (“SEP”).
A SEP is similar to a traditional IRA and is set up by the employer.
Any size business, even self-employed individuals, may establish a SEP.
Start-up and operating costs associated with conventional retirement plans do not apply to SEP plans, and they allow for a relatively large annual contribution of up to 25 percent of an employee’s earnings.
A Savings Incentive Match Plan for Employees (“Simple”).
Simple IRA plans are available to the self-employed and to business owners with 100 employees or less.
The costs of a Simple IRA are generally lower than those associated with 401(k)'s and other popular retirement plans.
The owner of a Simple IRA must wait two years from the date the account was opened before rolling over any funds to another plan.
You can set up an IRA with a bank or credit union, life insurance company, mutual fund, or stockbroker.
Each will have different investment choices available and different rules, procedures, and fees for managing your investments, as well as different minimum amounts to open an account. , This should include investment opportunities available under the plan, plan fees, equity trade fees, and tools available to assist you in maintaining your account.
Compare the plans you are considering.
While some may have lower fees, others may offer much more information and personal assistance to help you make the most of your IRA.
Compare the plans and decide which is right for your particular needs and financial circumstances.
Gather current and previous customer opinions on each plan.
Talk to friends, family, and co-workers, check with the Better Business Bureau for complaints lodged against the financial institution you are considering as administrator of your IRA, and read online customer reviews. , Most large banks, insurance companies, and brokerage and investment firms (such as TD Ameritrade, Wells-Fargo, and Fidelity, to name a few) can help you open an IRA by telephone or on their websites. , Most large institutions will be happy to assist you in making a smooth transfer of funds, although there could be a slight delay involved in the interface between your old plan and the new one. , You may wish to consult with an accountant, tax attorney, or a certified financial planner for help in determining what type of transfer is most appropriate in your situation.
You may choose from two types of rollovers:
Direct.
A direct roll over occurs when the money transfers directly from one plan to the other ("trustee-to-trustee") without passing through the account holder's hands.
Indirect.
When using an indirect roll over, the funds are paid to the account holder, who then has sixty days to deposit them into the new account.
Amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment and will be taxed as regular income in the current year.
This may also result in an additional ten percent penalty for early withdrawal.
For these reasons, indirect roll overs are not recommended except in specific financial circumstances.
Again, consult a reputable tax advisor. , Be sure to inform the administrator that you would like to roll over funds, and provide information regarding which type of roll over you have chosen.
The administrator will then provide you with the appropriate forms to initiate the transfer. , The forms will be fairly self-explanatory, but if you have any questions, contact the administrator.
Many plans provide one-on-one assistance from financial advisors at little or no charge.
If you prefer, opening an IRA can often be handled entirely online.
About the Author
Carolyn Cooper
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