Rollover on IRA’s

Question:   How long do I have to roll over a distribution from a retirement plan to an IRA account?

You must complete the rollover by the 60th day following the day on which you receive the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413, Rollovers from Retirement Plans. For information on the Direct Rollover Option, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRA’s). To qualify for an automatic waiver or to obtain a waiver of the 60 day rollover requirement see ” Retirement Plans FAQs relating to Waivers of the 60-Day Rollover Requirement.

New update  for 2010-
Roth IRAs and rollovers. Beginning in 2010, regardless of your income or filing status, you can roll over to a Roth IRA your traditional IRA, SEP-IRA, SIMPLE IRA or an eligible rollover distribution from your employer-sponsored plan. Also, a special 2-year option will apply for rollovers to Roth IRAs in 2010 only. You have the option of reporting the taxable portion of your rollover in your gross income for 2010, or reporting half in 2011 and half in 2012. For additional information on rollovers, see Publication 590, Individual Retirement Arrangements (IRAs).

Rollovers from Retirement Plans

A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it within 60 days to another eligible retirement plan. This transaction is not taxable but it is reportable on your Federal Tax Return. You can roll over most distributions from an eligible retirement plan except for:

  1. The nontaxable part of a distribution, such as your after-tax contributions to a retirement plan (in certain situations after-tax contributions can be rolled over),
  2. A distribution that is one of a series of payments based on your life expectancy, or the joint life expectancy of you and your beneficiary, or paid over a period of ten years or more,
  3. A required minimum distribution,
  4. A hardship distribution,
  5. Dividends on employer securities, or
  6. The cost of life insurance coverage.

Further exclusions exist for certain loans and corrective distributions.

Any taxable amount of a distribution that is not rolled over must be included in income in the year of the distribution.

If a distribution is paid to you, you have 60 days from the date you receive it to roll it over to another eligible retirement plan. Any taxable distribution paid from an employer-sponsored retirement plan to you is subject to a mandatory withholding of 20%, even if you intend to roll it over later. If you do roll it over, and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your employer transfer a distribution directly to another eligible retirement plan or to an IRA. Under this option, the 20% mandatory withholding does not apply.

In general if you are under age 59 1/2 at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions unless an exception applies. For a list of exceptions refer to Topic 558. Certain distributions from a SIMPLE IRA will be subject to a 25% additional tax. For more information on SIMPLE IRAs, refer to Publication 590, Individual Retirement Accounts.

What’s New

Rollovers to Roth IRAs. For tax years starting in 2010, the $100,000 modified AGI limit on rollovers from eligible retirement plans to Roth IRAs is eliminated and married taxpayers filing a separate return can now roll over amounts to a Roth IRA.Also, for any 2010 rollover from an eligible retirement plan (other than a designated Roth account or Roth IRA) to a Roth IRA, any amounts that would be included as income will generally be included in income in equal amounts in 2011 and 2012. You can choose to include the entire amount in income in 2010.

In-plan rollovers to designated Roth accounts. After September 27, 2010, if you are a plan participant in a 401(k) or 403(b) plan, your plan may permit you to roll over amounts in those plans to a designated Roth account within the same plan (in-plan Roth rollover). The roll over of any untaxed amounts must be included in income. See In-plan Roth rollovers later for more details. Starting in 2011, governmental 457(b) plans can include designated Roth accounts.For any 2010 in-plan Roth rollovers, any amount that must be included in income is generally included in income in equal amounts in 2011 and 2012. You can choose to include the entire amount in income in 2010.

Talk to a tax consultant or Certified Public Accountant about your Rollover options.  Also visit the above website for more detailed information and forms.


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