Understanding an IRA Rollover

An Individual Retirement Account or an IRA is also referred to as a Traditional IRA. This is one of the most widely prevalent forms of retirement savings. An IRA Rollover refers to an individual retirement account that is eligible for receiving funds from the IRA holders’ other retirement accounts. IRA rollovers are usually seen when an individual is seeking change of employment and wants to divert his retirement savings from an existing 401(k)/403(b) account or an existing IRA account into a single, more investment-friendly account, i.e. a Rollover Individual Retirement Account.

There are no limits to the amount of money that can be rolled over towards a rollover IRA. A Rollover IRA presents some immediate advantages. Here, the money can be used by the account-holder for making a wider range of investments. Further, it simplifies retirement savings for an individual as money from various workplace retirement accounts can be diverted towards a single account.

Setting-up IRA and initiating an IRA rollover requires little paperwork and such services are provided by most financial institutions. An IRA rollover can be initiated via a check or a direct transfer of funds. However, there is one disadvantage in transferring money towards rollover IRAs through checks, i.e. withholding penalty is applied and thus, direct transfers are recommended. Many financial service providers recommend using the services of a rollover specialist to further expedite the process. These consultants also help the individual in choosing various forms of investment that are possible with a rollover IRA. Most institutions providing IRAs limit the amount of rollovers that can be done in a year—the norm is one IRA rollover in year.

Individuals planning an IRA rollover should be acquainted with the 60-day rule. Once funds have been receiving from an IRA distribution, the individual has 60 days for completing the transfer to funds to the rollover IRA. If this condition is not met, the funds are treated as ordinary, taxable money that is liable to be taxed as per the existing income tax rates.